International Banking and Liquidity Risk Transmission: Evidence from Poland

This study analyzes the effect of liquidity risk in large international banks and its transmission to Polish subsidiaries and branches of these international banks in recent years. Polish banks reacted to the increase of liquidity risk within the markets where the parent institutions were located. Foreign-owned banks with higher net liabilities from their parent institutions received more funding from abroad and supplied more loans, including FX housing loans, than other banks in response to the shocks occurring during the global financial crisis. Lending and foreign funding of locally owned banks was also affected by liquidity risk. The results suggest that intragroup links between banking institutions can serve both as an important channel for the international transmission of liquidity risk and as a stabilizing mechanism during liquidity crises.