International banking and liquidity risk transmission: Evidence from Italy

Abstract

This paper studies to what extent liquidity shocks have an impact on domestic and cross-border lending of Italian banks. In particular, it looks for differences across banks depending on their international exposure, and accounts for the effects of the sovereign debt crisis and the ECB nonconventional monetary policy measures. The main findings are that overall the degree of internationalization of the intermediaries seems to play a limited role in explaining the pattern of transmission of higher liquidity risk to lending. When proxied with a measure of sovereign risk, the paper finds evidence that, when the spread widens, banks without foreign affiliates reduce lending more than other banks.