The two faces of cross-border banking flows An investigation into - - PowerPoint PPT Presentation

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The two faces of cross-border banking flows An investigation into - - PowerPoint PPT Presentation

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The two faces of cross-border banking flows An investigation into the links between global risk, arms-length funding and internal capital markets Dennis Reinhardt and Steven J Riddiough International Banking: Microfoundations and

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The two faces of cross-border banking flows

An investigation into the links between global risk, arms-length funding and internal capital markets “International Banking: Microfoundations and Macroeconomic Implications”

De Nederlandsche Bank / International Monetary Fund conference De Nederlandsche Bank

12-13 June 2014

Discussion: Iman van Lelyveld

Deputy Head International Data Hub Dennis Reinhardt and Steven J Riddiough

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Outline

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Summary

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Things to consider 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series

4. Minor issues

5. Really minor issues

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Summary

 Well executed  Arms length vs intragroup cross border credit

  • VIX ↑

Arms length ↓ , Intragroup ≈

  • Crisis
  • ‘OECD’ parent banks inflows
  • Not a reduction in ‘Intragroup’ to foreign affiliates

 Contradicts theory (Bruno and Shin (2014))

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Outline

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Summary

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Things to consider 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series

4. Minor issues

5. Really minor issues

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Bank of America

Source: Opencorporates.com

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Goldman Sachs

Source: opencoroporates.com Source: Opencorporates.com

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7 Inter-office ‘Foreign’ Banks ‘Foreign’ non-Banks ‘Domestic’ Banks (FC) ‘Domestic’ non-Bank (FC) Residents (LC) Fender and McGuire (2010): BIS consolidated banking statistics (IR), locational by nationality Net inter-office

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8 Fender and McGuire (2010): BIS consolidated banking statistics (IR), locational by nationality

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Outline

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Summary

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Things to consider 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series

4. Minor issues

5. Really minor issues

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Straw men

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Straw men: Bruno and Shin (2014)

 Balance of payments view

  • About where to invest
  • Not about the choice of whether to do so directly

(intragroup) or indirectly (interbank)

 Risk view

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Outline

1.

Summary

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Things to consider 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series

4. Minor issues

5. Really minor issues

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Sensitivity

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Outline

1.

Summary

2.

Things to consider 1. Supplement: look at complete balance sheet 2. Straw men 3. Sensitivity: longer series

4. Minor issues

5. Really minor issues

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Minor things

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 Local crises vs. global crisis (De Haas and van Lelyveld (2010 JFI,2014 JMCB))  Is Return on Equity a measure of risk?

  • Profitability
  • Shouldn’t it be the mean?

 Sensitivity/efficiency: estimate Benchmark model with

Intragroup percentage as an explanatory variable. Interaction?

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Really minor things

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 Does Northern Rock count as ‘heightened global risk’?  Add the main effect if you use interaction terms  Section 5.2.1 does not add much

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Summary

 Nice paper on a very topical subject  Good use of the data  Place it against a slightly larger background of bank activity

  • Lending
  • Other funding sources

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