انتقال مرزی از نقدینگی اضطراری Cross-border transmission of emergency liquidity

1 Introduction What are the cross-border implications of the pervasive provision of emergency liquidity facilities by central banks for corporate loan and deposit rates? By the end of 2008, the federal funds rate was at the zero-lower bound, rendering conventional monetary policy unavailable. Figure 1 shows that the U.S. Federal Reserve distributed up to 1.2 trillion USD by means of emergency lending facilities to financial institutions with a U.S. banking charter to alleviate continuing funding pressure. The cost of these facilities was well below those charged by the European Central Bank (ECB) (see Figure C.1 in the Online Appendix). Accordingly, more than half of the distributed volume was used by foreign bank affiliates (Benmelech, 2012; Shin, 2012; Acharya et al., 2014). We test if U.S. emergency liquidity was re-allocated via the internal capital markets of international (non-U.S.) bank holding companies (IBHC) and affected banks’ funding and lending terms outside the U.S. economy. – Figure 1 around here – Investigating the effects of liquidity assistance is particularly relevant because Bernanke and Gertler (1992, 1995) and Kashyap and Stein (2000) emphasize that banks already fail to fully transmit conventional monetary policy when facing funding constraints and uncertainty about liquidity access (see also Freixas et al., 2011), a limitation aggravated at the zero-lower bound (Adam and Billi, 2007). The empirical evidence for the U.S. emergency liquidity provision suggests that it mitigated banks’ funding pressure in severely stressed federal fund markets fairly well (Afonso et al., 2011; Wu, 2011). 1 Emergency liquidity facilities effectively substituted conventional monetary policy in terms of employment and output responses (Gambacorta et al., 2014). When short-term funding pressure mounted, lending volumes contracted and lending rates increased due to the crisis (Santos, 2010; Ivashina and Scharfstein, 2010). Emergency liquidity lines mitigated domestic lending contraction in particular by large banks (Berger et al., 2017). The potential downside was, in turn, that weak banks could use emergency liquidity, thereby increasing expectations of bailouts “through the backdoor” (Helwege et al., 2017; Hett and Schmidt, 2017). Our focus is to shed light on the consequences of unconventional U.S. monetary policy for credit and funding cost outside the U.S., which remain uncharted so far. Contrary to the effects of U.S. emergency lending on U.S. banks, we test for the cross-border impact of these facilities.