The two faces of cross-border banking flows: An investigation into the links between global risk, arms-length funding, and internal capital markets

Dennis Reinhardt, Steven Riddiough 07 May 2014

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Following the collapse of Lehman Brothers in September 2008, global risk spiked and the world witnessed a collapse in cross-border funding between banks. On closer inspection, however, not all countries’ banking systems experienced a withdrawal of cross-border finance. In fact, a number actually enjoyed an inflow of funding from banks overseas (Figure 1).

Figure 1 Cross-border bank-to-bank flows following the collapse of Lehman Brothers

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Topics:  Financial markets International finance

Tags:  financial stability, banking, Wholesale funding, interbank lending, Cross-border lending, cross-border banking

How important was the worldwide use of wholesale funds for the international transmission of the US subprime crisis?

Claudio Raddatz 15 March 2010

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The global scale of the financial crisis begs the question: How could a shock to a seemingly small segment of the US financial market spread so far, so quickly? Although trade links with the US have undoubtedly played a role (Levchenko et al. 2009), the timing of some of the events strongly suggests that the first route of transmission was through the web of international finance. Take the bank run on Northern Rock in September 2007, this took place only one month after the beginning of the crisis in the US and when the US economy had not yet started to shrink.

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Topics:  Global crisis

Tags:  financial regulation, global crisis, Wholesale funding

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