Foreign Currency Bank Funding and Global Factors
IMF Working Papers, May 9, 2018
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- Foreign Currency Bank Funding and Global Factors
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Bibliographic details
- Authors: Signe Krogstrup, Cédric Tille
- Published: May 9, 2018
- Series: IMF Working Papers
Executive summary
- The literature emphasizes the prominent role of global financial factors in driving capital flows.
- Recent empirical work finds substantial heterogeneity in that role across countries and over time; this heterogeneity is not well understood.
- This study focuses on financial intermediaries’ funding flows in different currencies to revisit the question.
- A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure.
- An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area.
Key findings and empirical evidence
- The response of foreign currency funding flows to global risk factors is not uniform; it varies by financial intermediary currency exposure.
- The model predicts both the sign and magnitude of flows' responses are driven by pre-existing currency exposure.
- Empirical analysis uses a dataset of European banks’ aggregate balance sheets and finds support for the model, with stronger evidence in non-euro-area countries.
Subject areas and keywords (as reported)
- Subject: Balance of payments; Banking; Capital flows; Currencies; Exchange rate risk; Financial regulation and supervision; Financial statements; Foreign currency exposure; Money; Public financial management (PFM)
- Keywords: balance sheet exposure; bank flow; bank foreign currency; bank funding; capital flows; Cross border; cross-border transmission of shocks; Currencies; Currency mismatch; European bank balance sheets; exchange rate; Exchange rate risk; exposure measure; financial institution; Financial statements; foreign currency borrowing; Foreign currency exposure; forward contract; forward market; Global; push factors; risk aversion; spillovers; swap market; wholesale funding; WP
Content in this bundle
- Foreign Currency Bank Funding and Global Factors, WP/18/97, May 2018