Uncertainty and cross-border banking flows

Sangyup Choi, Davide Furceri

Research output: Contribution to journalArticle

Abstract

While global uncertainty—measured by the VIX—has proven to be a robust global “push” factor of international capital flows, there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows. This paper examines the effects of higher country-specific uncertainty on cross-border banking flows using data from the Bank for International Settlements Locational Banking Statistics. The bilateral structure of this data allows disentangling supply factors from demand factors, thereby helping identify the effect of higher uncertainty on cross-border banking flows from other confounding factors. The results of this analysis suggest that: (i) uncertainty in a source country (domestic economy) is both a lender-specific push and pull factor that robustly predicts a decrease in outflows (cross-border lending) and inflows (cross-border borrowing); (ii) the decline in cross-border borrowing is larger than the decline in cross-border lending—that is, the net cross-border position of the banking sector increases; (iii) despite a decline in cross-border bank lending in the absolute sense, the share of cross-border bank lending in total bank lending increases, suggesting a portfolio rebalancing; (iv) this rebalancing occurs only when banks are lending to borrowers in advanced economies, but not to those in emerging market economies.

Original languageEnglish
Pages (from-to)260-274
Number of pages15
JournalJournal of International Money and Finance
Volume93
DOIs
Publication statusPublished - 2019 May 1

Fingerprint

Banking
Uncertainty
Cross-border
Bank lending
Factors
Lending
Bilateral
Borrowing
Banking sector
Push and pull factors
Statistics
Data flow
Capital flows
Confounding
Rebalancing
Factor demand
Emerging market economies
Portfolio rebalancing
International capital flows

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

@article{d768f4f3a20f4512bbc20276ea70356f,
title = "Uncertainty and cross-border banking flows",
abstract = "While global uncertainty—measured by the VIX—has proven to be a robust global “push” factor of international capital flows, there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows. This paper examines the effects of higher country-specific uncertainty on cross-border banking flows using data from the Bank for International Settlements Locational Banking Statistics. The bilateral structure of this data allows disentangling supply factors from demand factors, thereby helping identify the effect of higher uncertainty on cross-border banking flows from other confounding factors. The results of this analysis suggest that: (i) uncertainty in a source country (domestic economy) is both a lender-specific push and pull factor that robustly predicts a decrease in outflows (cross-border lending) and inflows (cross-border borrowing); (ii) the decline in cross-border borrowing is larger than the decline in cross-border lending—that is, the net cross-border position of the banking sector increases; (iii) despite a decline in cross-border bank lending in the absolute sense, the share of cross-border bank lending in total bank lending increases, suggesting a portfolio rebalancing; (iv) this rebalancing occurs only when banks are lending to borrowers in advanced economies, but not to those in emerging market economies.",
author = "Sangyup Choi and Davide Furceri",
year = "2019",
month = "5",
day = "1",
doi = "10.1016/j.jimonfin.2019.01.012",
language = "English",
volume = "93",
pages = "260--274",
journal = "Journal of International Money and Finance",
issn = "0261-5606",
publisher = "Elsevier BV",

}

Uncertainty and cross-border banking flows. / Choi, Sangyup; Furceri, Davide.

In: Journal of International Money and Finance, Vol. 93, 01.05.2019, p. 260-274.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Uncertainty and cross-border banking flows

AU - Choi, Sangyup

AU - Furceri, Davide

PY - 2019/5/1

Y1 - 2019/5/1

N2 - While global uncertainty—measured by the VIX—has proven to be a robust global “push” factor of international capital flows, there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows. This paper examines the effects of higher country-specific uncertainty on cross-border banking flows using data from the Bank for International Settlements Locational Banking Statistics. The bilateral structure of this data allows disentangling supply factors from demand factors, thereby helping identify the effect of higher uncertainty on cross-border banking flows from other confounding factors. The results of this analysis suggest that: (i) uncertainty in a source country (domestic economy) is both a lender-specific push and pull factor that robustly predicts a decrease in outflows (cross-border lending) and inflows (cross-border borrowing); (ii) the decline in cross-border borrowing is larger than the decline in cross-border lending—that is, the net cross-border position of the banking sector increases; (iii) despite a decline in cross-border bank lending in the absolute sense, the share of cross-border bank lending in total bank lending increases, suggesting a portfolio rebalancing; (iv) this rebalancing occurs only when banks are lending to borrowers in advanced economies, but not to those in emerging market economies.

AB - While global uncertainty—measured by the VIX—has proven to be a robust global “push” factor of international capital flows, there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows. This paper examines the effects of higher country-specific uncertainty on cross-border banking flows using data from the Bank for International Settlements Locational Banking Statistics. The bilateral structure of this data allows disentangling supply factors from demand factors, thereby helping identify the effect of higher uncertainty on cross-border banking flows from other confounding factors. The results of this analysis suggest that: (i) uncertainty in a source country (domestic economy) is both a lender-specific push and pull factor that robustly predicts a decrease in outflows (cross-border lending) and inflows (cross-border borrowing); (ii) the decline in cross-border borrowing is larger than the decline in cross-border lending—that is, the net cross-border position of the banking sector increases; (iii) despite a decline in cross-border bank lending in the absolute sense, the share of cross-border bank lending in total bank lending increases, suggesting a portfolio rebalancing; (iv) this rebalancing occurs only when banks are lending to borrowers in advanced economies, but not to those in emerging market economies.

UR - http://www.scopus.com/inward/record.url?scp=85061066515&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85061066515&partnerID=8YFLogxK

U2 - 10.1016/j.jimonfin.2019.01.012

DO - 10.1016/j.jimonfin.2019.01.012

M3 - Article

AN - SCOPUS:85061066515

VL - 93

SP - 260

EP - 274

JO - Journal of International Money and Finance

JF - Journal of International Money and Finance

SN - 0261-5606

ER -