Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189859 
Year of Publication: 
2017
Series/Report no.: 
Staff Report No. 818
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
What is the role of supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in Amiti and Weinstein (forthcoming) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks, and idiosyncratic demand shocks for the 2000-16 period. A striking feature of the global banking flows data can be characterized by what we term the "Anna Karenina Principle": all healthy credit relationships are alike, but each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well explained by a common global factor and a local demand factor. But during times of crisis flows are affected by idiosyncratic supply shocks to a borrower country's creditor banks. This has important implications for why standard models break down during crises.
Subjects: 
international banking
global financial crisis
supply shocks versus demand shocks
BIS consolidated banking statistics
JEL: 
F34
G01
G21
Document Type: 
Working Paper

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