liquidity strongmanagementstrong of u.s. global banks internal capital.pdf

Liquidity management of U.S. global banks: Internal capital markets in the great recession Nicola Cetorelli Federal Reserve Bank of New York Linda S. Goldberg Federal Reserve Bank of New York and NBER March 2, 2012 Abstract 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. Keywords: Bank, global, liquidity, transmission, capital markets, crisis, contagion JEL Classification: E44, F36, G32 ________________________________________________________________________ The views expressed in this paper are those of the individual authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.