Crises and Rescues: Monetary Policy Transmission Through International Banks

We study the effects of the U.S. Federal Reserve’s Term Auction Facility (TAF) on globally active banks. We exploit a unique dataset with information on all foreign activities of German banks’ affiliates both, inand outside the US. All German parent banks with US affiliates tapped TAF liquidity, which mitigates self-selection concerns. This setting allows testing whether foreign affiliate activity outside the US has evolved differently for banks with and without access to TAF. Our results provide evidence for monetary policy transmission through internationally active banks. After controlling for parent-, affiliate-, and hostcountry characteristics, TAF had a positive impact on assets and liabilities of foreign affiliates of German parent banks outside the US. The response to TAF differs across banks and regions though. Government-owned and large banks drive the positive TAF effect. The effect is strongest for assets held in financial centers and in the European Monetary Union (EMU). JEL codes: G01, F34, G21