Review of Financial Studies Vol. 35 No. 1 2021
Cross-Border Bank Flows and Monetary Policy
Abstract
We analyze the impact of monetary policy on cross-border bank flows for a large sample of countries over two decades. We find evidence in favor of a cross-border risk-taking channel, as the monetary policy stance of source countries is an important determinant of cross-border bank flows. A relatively tighter monetary policy in source countries prompts banks to reallocate their lending toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for source countries with lower-capitalized banks. Also, the reallocation is directed toward foreign borrowers in relatively safer destinations, such as advanced economies or economies with investment-grade sovereign ratings.
- DOI
- 10.1093/rfs/hhab019
- Volume
- 35
- Issue
- 1
- Pages
- 438-481
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref