Banking Globalization and Monetary Transmission




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    • Nicola Cetorelli and Linda S. Goldberg are at the Federal Reserve Bank of New York. The views expressed in this paper are those of the individual authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. We are very grateful to Campbell Harvey, the Editor, and an anonymous referee for very extensive and insightful remarks. We also appreciate valuable comments from Anil Kashyap, Jeremy Stein, Phil Strahan, and Adam Ashcraft, as well as from seminar and conference participants at London School of Economics/London Business School/University College of London Trio Seminar, Bundesbank, CEPR, International Monetary Fund, European Central Bank, Bank for International Settlements, NBER, Bank of England, and University of Alabama. We also thank Leslie Shen, Sarita Subramanian, Nikki Candelore, and Victoria Baranov for research assistance.


Globalization of banking raises questions about banks’ liquidity management, their response to liquidity shocks, and the potential for international shock propagation. We conjecture that global banks manage liquidity on a global scale, actively using cross-border internal funding in response to local shocks. Having global operations insulates banks from changes in monetary policy, while banks without global operations are more affected by monetary policy than previously found. We provide direct evidence that internal capital markets are active in global banks and contribute to the international propagation of shocks. This feature was at play during the financial crisis of 2007–2009.