Banking globalization, monetary transmissionand the lending channel

The globalization of banking in the United States is influencing the monetarytransmission mechanism both domestically and in foreign markets. Using quarterlyinformation from all U.S. banks filing call reports between 1980 and 2005, we findevidence for the lending channel for monetary policy in large banks, but only those banksthat are domestically-oriented and without international operations. We show that thelarge globally-oriented banks rely on internal capital markets with their foreign affiliatesto help smooth domestic liquidity shocks. We also show that the existence of suchinternal capital markets contributes to an international propagation of domestic liquidityshocks to lending by affiliated banks abroad. While these results imply a substantiallymore active lending channel than documented in the seminal work of Kashyap and Stein(2000), the lending channel within the United States is declining in strength as bankingbecomes more globalized....