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  • December 2020
  • Article
  • Journal of Finance

Monetary Policy and Global Banking

By: Falk Bräuning and Victoria Ivashina
  • Format:Print
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Abstract

When central banks adjust interest rates, the opportunity cost of lending in local currency changes, but—in absence of frictions—there is no spillover effect to lending in other currencies. However, when equity capital is limited, global banks must benchmark domestic and foreign lending opportunities. We show that, in equilibrium, the marginal return on foreign lending is affected by the interest rate differential, with lower domestic rates leading to an increase in local lending, at the expense of a reduction in foreign lending. We test our prediction in the context of changes in interest rates in six major currency areas.

Keywords

Global Banks; Monetary Policy Transmission; Cross-border Lending; Banks and Banking; Financial Markets; Global Range

Citation

Bräuning, Falk, and Victoria Ivashina. "Monetary Policy and Global Banking." Journal of Finance 75, no. 6 (December 2020): 3055–3095.
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About The Author

Victoria Ivashina

Finance
→More Publications

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  • PE Secondaries: Blackstone Strategic Partners By: Victoria Ivashina and Luis M. Viceira
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