{
  "title": "Foreign Currency Bank Funding and Global Factors",
  "publication": "IMF Working Papers, May 9, 2018",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/05/09/foreign-currency-bank-funding-and-global-factors-45799",
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  "summary": "The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood.",
  "sections": [
    {
      "heading": "Executive summary",
      "content": "- The literature emphasizes the prominent role of global financial factors in driving capital flows.\n- Recent empirical work finds substantial heterogeneity in that role across countries and over time; this heterogeneity is not well understood.\n- This study focuses on financial intermediaries’ funding flows in different currencies to revisit the question.\n- 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.\n- 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."
    },
    {
      "heading": "Key findings and empirical evidence",
      "content": "- The response of foreign currency funding flows to global risk factors is not uniform; it varies by financial intermediary currency exposure.\n- The model predicts both the sign and magnitude of flows' responses are driven by pre-existing currency exposure.\n- 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."
    },
    {
      "heading": "Subject areas and keywords (as reported)",
      "content": "- 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)\n- 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\n\n---\n\n Content in this bundle\n\n- Foreign Currency Bank Funding and Global Factors, WP/18/97, May 2018\n  - Foreign Currency Bank Funding and Global Factors, WP/18/97, May 2018 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Foreign Currency Bank Funding and Global Factors, WP/18/97, May 2018 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/05/09/foreign-currency-bank-funding-and-global-factors-45799"
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    "Authors: Signe Krogstrup, Cédric Tille",
    "Published: May 9, 2018",
    "Series: IMF Working Papers",
    "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.",
    "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: 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",
    "**Foreign Currency Bank Funding and Global Factors, WP/18/97, May 2018**"
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