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Report
International banking and liquidity risk transmission: lessons from across countries
Goldberg, Linda S.; Buch, Claudia M. (2014-05-01)
Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network, established in 2012, brings together researchers from around the world with access to micro-level data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and ...
Staff Reports , Paper 675

Working Paper
Policy Rules and Large Crises in Emerging Markets
Espino, Emilio; Sanchez, Juan M.; Martin, Fernando M.; Kozlowski, Julian (2025-06-12)
Emerging economies have adopted fiscal and monetary rules to discipline government policy. We study the value and macroeconomic implications of rules and flexibility within a sovereign-default model that incorporates domestic fiscal and monetary policies and long-term external debt. Adopting monetary targets and debt limits during normal times yields welfare gains. Suspending rules can significantly influence policy, macroeconomic outcomes, and welfare during large, unforeseen crises. The gains from flexibility depend on how quickly policymakers are able to reimpose rules after the crisis.
Working Papers , Paper 2022-018

Working Paper
Banking Regulation with Risk of Sovereign Default
Schoors, Koen; Livshits, Igor; D'Erasmo, Pablo (2019-02-22)
Banking regulation routinely designates some assets as safe and thus does not require banks to hold any additional capital to protect against losses from these assets. A typical such safe asset is domestic government debt. There are numerous examples of banking regulation treating domestic government bonds as ?safe,? even when there is clear risk of default on these bonds. We show, in a parsimonious model, that this failure to recognize the riskiness of government debt allows (and induces) domestic banks to ?gamble? with depositors? funds by purchasing risky government bonds (and assets ...
Working Papers , Paper 19-15

Working Paper
U.S. Monetary Policy and Fluctuations of International Bank Lending
Avdjiev, Stefan; Hale, Galina (2018-01-11)
There is no consensus in the empirical literature on the direction in which U.S. monetary policy affects cross-border bank lending. We find robust evidence that the impact of the U.S. federal funds rate on cross-border bank lending in a given period depends on the prevailing international capital flows regime and on the level of the two main components of the federal funds rate: macro fundamentals and monetary policy stance. During episodes in which bank lending from advanced to emerging economies is booming, the relationship between the federal funds rate and cross-border bank lending is ...
Working Paper Series , Paper 2018-2

Working Paper
Foreign Bank Lending and Bond Underwriting in Japan During the Lost Decade
Lopez, Jose A.; Spiegel, Mark M. (2006-11-01)
We examine foreign intermediation activity in Japan during the so-called "lost decade" of the 1990s, contrasting the behavior of lending by foreign commercial banks and underwriting activity by foreign investment banks over that period. Foreign bank lending is shown to be sensitive to domestic Japanese conditions, particularly Japanese interest rates, more so than their domestic Japanese bank counterparts. During the 1990s, foreign bank lending in Japan fell, both in overall numbers and as a share of total lending. However, there was marked growth in foreign underwriting activity in the ...
Working Paper Series , Paper 2006-45

Working Paper
Risk Sharing and Amplification in the Global Banking Network
Shen, Leslie Sheng; Zhang, Tony (2024-04-01)
We develop a structural model of the global banking network and analyze its role in facilitating risk sharing and amplifying shocks across countries and over time. Using bilateral international lending data, we uncover significant heterogeneity in the willingness and capacity of banks to provide cross‐border interbank and corporate loans. This heterogeneity explains variation in risk sharing and amplification across countries. Moreover, we show that cross‐border loan supply has become less elastic overtime, resulting in a decline in risk sharing. While shock amplification has also ...
Working Papers , Paper 24-4

Working Paper
Risk Management for Sovereign Debt Financing with Sustainability Conditions
Zenios, Stavros A.; Consiglio, Andrea; Athanasopoulou, Marialena; Moshammer, Edmund; Gavilan, Angel; Erce, Aitor (2019-06-01)
We develop a model of debt sustainability analysis with optimal financing decisions in the presence of macroeconomic, financial and fiscal uncertainty. We define a coherent measure of refinancing risk, and trade off the risks of debt stock and flow dynamics, subject to debt sustainability constraints and endogenous risk and term premia. We optimize both static and dynamic financing strategies, compare them with several simple rules and consol financing to demonstrate economically significant effects of optimal financing, and show that the stock-flow tradeoff can be critical for ...
Globalization Institute Working Papers , Paper 367

Working Paper
News, sovereign debt maturity, and default risk
Dvorkin, Maximiliano; Sapriza, Horacio; Sanchez, Juan M.; Yurdagul, Emircan (2018-10-31)
Leading into a debt crisis, interest rate spreads on sovereign debt rise before the economy experiences a decline in productivity, suggesting that news about future economic developments may play an important role in these episodes. In a VAR estimation, a news shock has a larger contemporaneous impact on sovereign credit spreads than a comparable shock to labor productivity. A quantitative model of news and sovereign debt default with endogenous maturity choice generates impulse responses and a variance decomposition similar to the empirical VAR estimates. The dynamics of the economy after a ...
Working Papers , Paper 2018-33

Report
Self-Fulfilling Debt Crises with Long Stagnations
Ayres, Joao; Teles, Pedro; Navarro, Gaston; Nicolini, Juan Pablo (2024-06-18)
We assess the quantitative relevance of expectations-driven sovereign debt crises, focusing on the southern European crisis of the early 2010s and the Argentine default of 2001. The source of multiplicity is the one in Calvo (1988). Crucial for multiplicity is an output process characterized by long periods of either high growth or stagnation, which we estimate using data for these countries. We find that expectations-driven debt crises are quantitatively relevant but state dependent, as they occur only during periods of stagnation. Expectations, and how they respond to policy, are the major ...
Staff Report , Paper 659

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