Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession - Federal Reserve Bank of New York

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Staff Reports

Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession

August 2011 Number 511
Revised May 2012

JEL classification: E44, F36, G32

Authors: Nicola Cetorelli and Linda Goldberg

The recent crisis highlighted the importance of globally active banks in linking markets. One channel for this linkage is through how these banks manage liquidity across their entire banking organization. We document that funds regularly flow between parent banks and their affiliates in diverse foreign markets. We show that parent banks, when hit by a funding shock, reallocate liquidity in the organization according to a locational pecking order. Affiliate locations that are important for the parent bank revenue streams are relatively protected from liquidity reallocations in the organization, while traditional funding locations are more extensively used to buffer shocks to the parent bank balance sheets.

Available only in PDF pdf

45 pages / 913 kb

For a published version of this report, see Nicola Cetorelli and Linda Goldberg, "Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession," Journal of International Economics 88, no. 2 (November 2012): 299-311.

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