Cross-Border Transmission of Emergency Liquidity

46 Pages Posted: 5 Oct 2016

See all articles by Thomas K. Kick

Thomas K. Kick

Deutsche Bundesbank

Michael Koetter

Halle Institute for Economic Research

Manuela Storz

European Central Bank (ECB); Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: 2016

Abstract

We show that emergency liquidity provision by the Federal Reserve transmitted to non-U.S. banking markets. Based on manually collected holding company structures of international banks, we can identify banks in Germany with access to U.S. facilities via internal capital markets. Using proprietary interest rate data reported to the German central bank, we compare lending and borrowing rates of banks with and without such access. U.S. liquidity shocks cause a significant decrease in the short-term funding costs of German banks with access. Short-term loan rates charged to German corporates also decline, albeit with lags between two and four months. These spillover effects of U.S. monetary policy are confined to short-term rates.

Keywords: monetary policy transmission, emergency liquidity, internal capital markets, interest rates

JEL Classification: E52, E58, F23, F38, G01, G21

Suggested Citation

Kick, Thomas K. and Koetter, Michael and Storz, Manuela, Cross-Border Transmission of Emergency Liquidity (2016). Bundesbank Discussion Paper No. 34/2016, Available at SSRN: https://ssrn.com/abstract=2848047

Thomas K. Kick (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Michael Koetter

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Manuela Storz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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