The two faces of cross-border banking flows An investigation into - PowerPoint PPT Presentation

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 and Steven J Riddiough “ International Banking: Microfoundations and Macroeconomic Implications” De Nederlandsche Bank / International Monetary Fund conference De Nederlandsche Bank 12-13 June 2014 Discussion: Iman van Lelyveld Deputy Head International Data Hub Restricted

Outline Summary 1. Things to consider 2. 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series 4. Minor issues 5. Really minor issues 2 Restricted

Summary  Well executed  Arms length vs intragroup cross border credit  VIX ↑ Arms length ↓ , Intragroup ≈  Crisis - ‘OECD’ parent banks inflows - Not a reduction in ‘Intragroup’ to foreign affiliates  Contradicts theory ( Bruno and Shin (2014) ) Restricted

Outline Summary 1. Things to consider 2. 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series 4. Minor issues 5. Really minor issues 4 Restricted

Bank of America Source: Opencorporates.com 5 Restricted

Goldman Sachs Source: opencoroporates.com Source: Opencorporates.com 6 Restricted

Inter-office ‘Foreign’ Banks ‘Foreign’ non -Banks ‘Domestic’ Banks ( FC ) ‘Domestic’ non-Bank ( FC ) Residents ( LC ) Net inter-office Fender and McGuire (2010): BIS consolidated banking statistics (IR), locational by nationality 7 Restricted

Fender and McGuire (2010): BIS consolidated banking statistics (IR), locational by nationality 8 Restricted

Outline Summary 1. Things to consider 2. 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series 4. Minor issues 5. Really minor issues 9 Restricted

Straw men 10 Restricted

Straw men: Bruno and Shin (2014)  Balance of payments view  About where to invest  Not about the choice of whether to do so directly (intragroup) or indirectly (interbank)  Risk view 11 Restricted

Outline Summary 1. Things to consider 2. 1. Supplement: look at complete balance sheet 2. Straw man arguments 3. Sensitivity: longer series 4. Minor issues 5. Really minor issues 12 Restricted

Sensitivity 13 Restricted

Outline Summary 1. Things to consider 2. 1. Supplement: look at complete balance sheet 2. Straw men 3. Sensitivity: longer series 4. Minor issues 5. Really minor issues 14 Restricted

Minor things  Local crises vs. global crisis ( De Haas and van Lelyveld (2010 JFI ,2014 JMCB ) )  Is Return on Equity a measure of risk?  Profitability  Shouldn’t it be the mean?  Sensitivity/efficiency: estimate Benchmark model with Intragroup percentage as an explanatory variable. Interaction? 15 Restricted

Really minor things  Does Northern Rock count as ‘heightened global risk’?  Add the main effect if you use interaction terms  Section 5.2.1 does not add much 16 Restricted

Summary  Nice paper on a very topical subject  Good use of the data  Place it against a slightly larger background of bank activity  Lending  Other funding sources 17 Restricted