PROJECTS
Climate Risks and Financial Institutions (2023-2024)
Climate change can potentially affect financial institutions through two main risks: physical and transition. Physical risks can be acute (i.e., driven by events such cyclones, hurricanes, floods, or other severe weather events) or chronic (i.e., associated with longer-term shifts in climate patterns, such as sustained higher temperatures, sea level rise, or changing precipitation patterns). Transition risks are associated with unexpected changes in strategies, policies, investments, and market preferences during the transition to a low-carbon economy. The initiative intends to assess the effect of these risks on financial institutions by looking at historical episodes where either physical risks or policy\preference shifts have been linked to the performance of these institutions, including losses on their assets. The initiative may also take a forward-looking approach by investigating the potential implications of future physical and transition risks on financial institutions.
Non-Bank Financial Intermediation and Liquidity (2023-2024)
This initiative intends to assess the importance and dynamics of flows to non-bank financial intermediaries (NBFIs). The initiative proposes exploring a number of hypotheses around two types of developments associated with NBFIs: 1) structural shifts in the NBFI sector, (e.g. rapid growth of investment funds), 2) reactions to domestic or global shocks (e.g. COVID, monetary tightening, liquidity shock). The objective of this project is to test whether differences across NBFIs and in contrast to banks, have implications for the cross-border flow of capital, and financial stability in general. The analysis can employ data at various levels of granularity, from the country level assessment of different NBFI types (for example investment funds, pension funds, insurance, etc) to the fund-security level data on portfolio allocation.
Low Interest Rates and International Banking (2020-2022)
The purpose of this IBRN initiative is to enhance our insights on the consequences of low or even negative interest rates for banks, both from a domestic and from an international perspective. We use confidential and publicly available data for a large set of countries that have experienced historically low nominal and real interest rates in recent years and examine their impact on bank profitability, bank funding and lending as well cross-border banking flows. These consequences are of interest for monetary policy as well as micro- and macroprudential supervision since they can affect the transmission of monetary policy and the viability of bank business models.
List of Publications
International Banking: Integration or Fragmentation? (2020-2022)
The purpose of this IBRN initiative is to examine the role of international trade and non-financial foreign direct investment (FDI) in driving international banking activities. Foreign-trade and FDI events can change the demand for banking services and the risk profiles of non-financial borrowers. The initiative considers how banks respond to such changes through their supply of services. The identification of these events relies on the study of episodes when changes in restrictions on foreign trade and FDI took place, including changes to cross-country bilateral or multilateral agreements, as well as more restrictive trade or investment regimes.
List of Publications
Complexity in International Banking: Patterns and Implications for Risk (2018-2021)
The IBRN initiative on complexity and risk aims to put together a comprehensive set of variables to assess the complexity of banks' activities and its adjustment along the extensive margin. Complexity can be measured by the opacity of banks' balance sheets, the number of entities and the composition of its businesses as well as its geographic reach. Building on this set of variables, the initiative also tries to assess the impact of complexity and changes thereof on bank risk.
List of Publications
The Interaction between Macroprudential Policy and Monetary Policy (2018-20)
The IBRN initiative on the interaction between macroprudential policy and monetary policy aims to examine the policy interaction and transmission from three different perspectives. The outward perspective examines whether the transmission of monetary policy through foreign lending from one country to another depends on the receiving country's macroprudential policy. The inward perspective asks whether the transmission of foreign monetary policy on domestic lending depends on domestic macroprudential policy. An examination of domestic interactions and transmission aims to assess the domestic transmission of macroprudential policies when they interact with monetary policy.
List of Publications
The international transmission of monetary policy: Financial linkages and domestic policy responses (2016-17)
This project of the IBRN investigates the impact of conventional and unconventional monetary policy actions on (domestic and international) bank lending, using each country team’s individual bank-level data set. Country teams provide evidence from the point of view of the base country and from the recipient country. In this sense, the project will examine outward and inward transmission. Researchers focus on the period from 2000 through 2015, capturing a number of distinct monetary policy regimes.
Key countries transmit their monetary conditions to the rest of the world. The transmission of monetary policy is typically discussed for countries such as the United States, the United Kingdom, and Japan and those in the Euro area, although there are important bilateral linkages too. A significant body of literature considers the cross-border spillovers of monetary policy, including transmission through banks. Previous literature focuses on the role of global risk and global liquidity conditions, on adjustment of the volumes of cross-border credit or capital flow, on identifying international bond price or exchange rate responses, or on monetary policy autonomy of countries by examining the interest rate co-movements.
Our initiative mainly focuses on the response of loan volumes (quantities) as it relies on micro-banking data from the individual country perspective, considering transmission into bank assets (such as lending to banks and nonbanks and other security holdings) and funding (including cross-border wholesale and through internal capital markets). Bank types are homegrown domestic institutions and hosted foreign banks. By looking at micro data, the teams are able to systematically compare which bank characteristics, if any, change the nature of transmission, and to identify the most important channels of transmission. This approach is particularly useful considering the increased general focus on bank capital and leverage and distinctions by business model and riskiness of types of assets and liabilities. The initiative, which is ongoing, will thus contribute to an improved understanding of the role of banks in monetary transmission.
List of Publications
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Cross-Border Prudential Policy Spillovers: How Much? How Important? (2014-16)
The IBRN’s second research topic explores the changing scale, type, and location of banking activity stemming from shifts in micro- and macroprudential regulatory policy. The initiative considers how bank lending responds to prudential policies implemented in home and foreign markets. Researchers examine evidence on the inward transmission of policy changes to the domestic economy as well as outward spillovers to foreign economies.
Fifteen IBRN country studies and two cross-country studies generate more specific insights as relevant to the structure of their banks and available micro-banking data, such as whether responses differ by type of bank or by type of funding flows.
A meta analysis by Claudia Buch and Linda Goldberg shares the motivation, methodology, and key findings of the initiative. The collective analysis has three main findings. First, prudential instrument effects sometimes spill over across borders through bank lending. Second, international spillovers vary across prudential instruments and are heterogeneous across banks. Bank-specific factors like balance sheet conditions and business models drive the amplitude and direction of spillovers to lending growth rates. Third, international spillovers of prudential policy on loan growth rates have not been large on average. However, our results tend to underestimate the full effect by focusing on adjustment along the intensive margin and by analyzing a period in which relatively few countries implemented country-specific macroprudential policies.
List of Publications
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International Banking and Liquidity Risk Transmission: Lessons from across Countries (2013)
Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet we know little about the actual magnitudes of and mechanisms of liquidity shocks transmitted through international banks, including the reasons for heterogeneity in transmission. The IBRN’s first joint research initiative is based on empirical studies conducted in eleven countries to explore liquidity risk transmission.
Among the main results discussed in Buch and Goldberg, "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," IMF Economic Review (2015) is, first, that the explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on whether the banks are drawing on official-sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks’ responses to liquidity risk. Overall, balance sheet characteristics of banks matter for differentiating their lending responses, mainly in the realm of cross-border lending.
List of Publications
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DATA
Comparative and comparable research across countries require equivalency in data. Projects of the IBRN have their starting point with regulatory, bank-level data that are available in central banks or other supervisory agencies. Often, additional data on policy measures are needed in order to obtain comparable results. In the course of their work, IBRN participants have been involved in significant efforts to integrate and standardize data from diverse sources and are committed to making the tools and results publicly available.
Macroprudential Database
The instruments covered include different types of prudential regulations: capital requirements, concentration limits, interbank exposure limits, loan-to-value ratio limits, and changes in reserve requirements. To construct this database, the IBRN and IMF collaboratively worked with regulatory sources in the individual countries, and extended and utilized the Global Macro Prudential Instruments (GMPI) survey which the IMF conducted in 2013. Stress tests, which may give incentives for banks to adjust their foreign exposures, are not covered in this project. Changes in reserve requirements are included since they are sometimes used explicitly by countries for prudential purposes, instead of as monetary policy instruments. The current version of the database covers the period between 2000 and 2018.
For an overview, see Eugenio Cerrutti, Ricardo Correa, Elisabetta Fiorentino, and Esther Segalla, “Changes in Prudential Policy Instruments—A New Cross-Country Database,” International Journal of Central Banking 11, no. 2 (2017).
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database 
RELATED ACTIVITIES
International Banking Library
The Halle Institute for Economic Research, together with scholars associated with the IBRN, launched the International Banking Library, which offers access to data sources, theoretical and empirical research on global banking themes, and information on regulatory initiatives.
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