Transmission of liquidity shocks: Evidence on cross-border bank ownership linkages

Yifei Cao, Ian Gregory-Smith, Alberto Montagnoli

Research output: Journal PublicationArticlepeer-review

8 Citations (Scopus)

Abstract

This study examines whether a liquidity shock to a banking system could be transmitted to other economies through a network of bank ownership. Firstly we construct cross-border ownership networks for banks located in European countries. We then exploit the 2010 European debt crisis as a natural experiment. The analysis shows that subsidiary banks located outside of Greece, Ireland, Italy, Portugal and Spain (GIIPS) but with ownership linkages to these countries have a lower loan growth rate during the crisis period. This suggests that the liquidity shock experienced by GIIPS countries was indeed transmitted to those banks through ownership linkages. Larger subsidiary banks and those subsidiaries that were more profitable are found to be more resilient to the shock. We also find that the parent bank's characteristics affect the transmission of the shock, supporting the notion of an internal capital market operating within these banks.

Original languageEnglish
Pages (from-to)158-178
Number of pages21
JournalJournal of International Financial Markets, Institutions and Money
Volume53
DOIs
Publication statusPublished - 2018
Externally publishedYes

Keywords

  • Bank lending
  • Crisis transmission
  • Foreign banks
  • Liquidity crisis

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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