Signe Krogstrup and Cédric Tille 29 August 2018: How global factors affect banks’ foreign currency funding: It depends on the exposure
Volatility in international capital flows can disrupt international trade and finance. This column explores the role of agents’ exposure to risk in this dynamic, focusing on domestic financial firms. It finds that the impact of an increase in risk aversion on foreign currency funding is conditional on the bank’s initial net currency exposure. This suggests that the empirical link from global factors to cross-border bank funding depends on country-specific characteristics of financial institutions.