2025地缘政治与货币政策：解读其对跨境银行贷款的影响（英）.docx

BIS Working Papers
No 1247
Geopolitics meets monetary policy: decoding their impact on cross-border bank lending
by Swapan-Kumar Pradhan, Viktors Stebunovs, Előd Takáts and Judit Temesvary

Monetary and Economic Department

March 2025

JEL classification: E52, F34, F42, F51, F53, G21.

Keywords: Monetary policy, geopolitical tensions, cross- border claims, difference-in-differences.

BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.

This publication is available on the BIS website (www.bis.org).

© Bank for International Settlements 2025. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated.

ISSN 1020-0959 (print)
ISSN 1682-7678 (online)

Geopolitics Meets Monetary Policy:

Decoding Their Impact on Cross-Border Bank Lending*

Swapan-Kumar Pradhan Viktors Stebunovs
Bank for International Settlements Federal Reserve Board Basel, CH Washington, DC, USA
[e-mail] [e-mail]

Előd Takáts Judit Temesvary
Bank for International Settlements Federal Reserve Board Basel, CH Washington, DC, USA
[e-mail] [e-mail]

Abstract: We use bilateral cross-border bank claims by nationality to assess the effects of geopolitics on cross-border bank flows. We show that a rise in geopolitical tensions between countries — disagreements in UN voting, broad sanctions, or sentiments captured by geopolitical risk indices — significantly dampens cross-border bank lending. Elevated geopolitical tensions also amplify the international transmission of monetary policies of major central banks, especially when geopolitical tensions coincide with monetary policy tightening. Overall, our results suggest that geopolitics is roughly as important as monetary policy in driving cross-border lending.
Keywords: Monetary policy; Geopolitical tensions; Cross-border claims; Diff-in-diff estimations JEL Codes: E52; F34; F42; F51; F53; G21

* The views expressed in this paper are solely those of the authors and shall not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of the Bank for International Settlements (BIS). We thank Jessica Ye for excellent assistance. We are grateful for comments from Dario Caldara and Goetz von Peter, from colleagues at the BIS and the Federal Reserve Board, and from seminar participants at the BIS, Hamilton College, the Hungarian Economic Association and the International Monetary Fund.

9

1 Introduction

Geopolitical risks and tensions have soared over the past decades: we have witnessed the proliferation of geopolitical fragmentation and even wars. These geopolitical tensions threaten economic activity as they drive uncertainty higher and divert trade and investments along geopolitical fault lines. The realization of geopolitical risks, such as sanctions or wars, further weighs on macroeconomic outcomes across the world. Notwithstanding, the effects of geopolitics in shaping capital flows, in particular bank flows, have been little studied so far. Indeed, how large is the impact of these geopolitical effects on cross-border bank lending? Do they strengthen or weaken the impact of monetary policy of major central banks on cross-border bank lending?
We study these questions by focusing on three measures of geopolitical tensions and risks:

(1) UN voting disagreement between country pairs, captured by an ideal point distance following the Bailey et al. (2017) methodology, which we consider a measure of materialized geopolitical tensions; (2) trade, financial, military, and other bilateral sanctions, which serve as another measure of materialized geopolitical tensions; and (3) a potential precursor of geopolitical fragmentation and broad sanctions: geopolitical risk in lender and borrower countries, captured by Caldara and Iacoviello (2022)’s geopolitical risk indices (GPRs).
We find that geopolitics affects cross-border bank flows in an economically and statistically significant way. The rise in geopolitical tensions directly dampens cross-border bank lending and also amplifies the international transmission of monetary policy. Both the direct effects and the interaction effects with monetary policy are stronger for materialized geopolitical tensions (i.e. bilateral UN voting disagreement and bilateral sanctions) than for unrealized geopolitical tensions (as measured by the difference in GPRs of country pairs or by GPRs of borrower countries). Specifically, we show that UN voting disagreement has the largest effect, followed by sanctions.

To provide context, we also estimate the international transmission of monetary policy of major central banks, identified in Takats and Temesvary (2020). These monetary policy effects provide a benchmark for geopolitical effects: the results suggest that geopolitics is as significant as monetary policy in driving cross-border bank lending.
We investigate the joint effects of geopolitical tensions and monetary policy based on the bank lending channel (Kashyap and Stein, 2000). The bank lending channel posits that a rise in interest rates, and the subsequent tightening in liquidity conditions affect constrained banks more. The intensification of geopolitical tensions could further affect constrained banks more, as they might be perceived to be even riskier in the new environment - and as such, these banks might find acquiring additional liquidity more costly. Hence, constrained banks could cut their lending even more when geopolitical tensions and monetary tightening coincide.
Our empirical results support the bank lending channel-based theory: geopolitical tensions amplify the international transmission of monetary policy and the interaction is particularly strong when a rise in geopolitical tensions coincide with monetary policy tightening. We show that the interaction effect of monetary policy and geopolitics explains nearly as much of the variation in bilateral lending flows as monetary policy alone does – and is particularly potent in the context of rising interest rates and worsening geopolitical tensions. The interaction effects are again stronger for materialized geopolitical tensions than for unrealized tensions.
Our unique identification strategy relies on the currency dimension of the international bank lending channel: monetary policy of a currency issuer will affect cross-border flows in that currency even when neither the lender banking system nor the borrowers’ country uses the currency as its own. In other words, we look at cross-border bank lending flows between third- country pairs. As an example, we look at how U.S. monetary policy interacts with geopolitical

tensions between the U.K. and Russia in driving U.K. banks’ dollar lending to borrowers in Russia. We posit that monetary policies of reserve currency issuers are independent of geopolitical tensions among third-party countries. In our example, U.S. monetary policy is independent of the geopolitical tensions between the U.K. and Russia. Therefore, our approach avoids confounding monetary policy and geopolitical tensions.1
Our identification strategy is afforded by detailed data on the network of cross-border bank claims of lending banking systems on bank and non-bank borrowers in individual foreign countries by currency denomination (USD, EUR, JPY, GBP and CHF).2 These data are only accessible at the BIS. We combine the bank flow data with (1) country pair-specific quarterly measures of geopolitical tensions and risk; and (2) with shadow policy interest rate measures for USD, EUR, JPY, GBP and CHF from Krippner (2024).
Our findings are robust to extensive robustness checks. The results hold across lending to both financial and non-financial borrowers; across borrowers in advanced and emerging economies; and when accounting for cross-currency monetary policy effects and common trends in geopolitical risk.

1 To further strengthen our identification, we exclude each reserve currency issuer country’s banking system’s lending in their own currency. As an example, we exclude U.S. banks’ lending in U.S. dollars which could have confounding effects with U.S. monetary policy. We also control for source country monetary policy and currency valuation. Finally, as fiscal policy has notable effects on monetary policy transmission (Pradhan et al, 2024), we account for fiscal policy effects via inclusion of fiscal controls (in levels and interactions) and extensive fixed effects.
2 We use granular data from the Stage 1 and Stage 2 enhancements to the international locational banking statistics by nationality (LBSN) of the BIS. Our data is characterized as “unrestricted” – by definition, including all confidential observations that reporting countries provided for use only by the BIS. Stage 1 enhancements include a breakdown of counterparties by country and local currency positions by bank nationality, starting from 2012:Q2, also covering counterparty sector breakdowns such as banks, interoffice, central banks, unrelated banks, and aggregated nonbanks. Stage 2 enhancements, introduced in 2013:Q4, add a subsector breakdown for the nonbank sector, distinguishing between non-bank financial institutions and non-financial sectors, with further details, on an encouraged basis, for corporates, governments, and households.

Our results are policy relevant. For policy makers in reserve currency-issuing countries, understanding the effects of geopolitical tensions on monetary policy transmission can help gauge changes in global liquidity conditions in their currency. For policy makers in the source countries of lending banks, understanding the effects of geopolitical tensions can help gauge cross-border bank lending activities of their banks and thus, domestic credit conditions. For policy makers in borrowers’ countries, understanding the effects of geopolitical tensions can help gauge credit supply via cross-border bank lending to their country, to better manage periods of volatile bank flows.
The paper proceeds as follows. In Section 2, we review our contributions in the context of the related literature. In Sections 3 and 4, we describe the data and methods. In Sections 5 and 6, we detail results, discuss implications, and offer robustness checks. We conclude in Sections 7.

2 Literature review and hypothesis development

We develop our hypotheses in the context of two strands of the literature: 1) papers on the bank lending channel and its international extension; and 2) studies of the effects of various factors, including geopolitical risk and tensions, on international financial capital flows. We also draw on concepts, hypotheses, and data from other literature strands.
The concept of the bank lending channel of monetary policy in the domestic context originates from Kashyap and Stein (2000). The bank lending channel posits that a rise in monetary policy rates increases the cost of borrowing for banks across the board; however, balance sheet- constrained banks (e.g. those with lower liquidity or capital) see a larger cost increase, due to being perceived as riskier by investors in financial markets. As a result, these banks cut their lending

more than their unconstrained peers. Subsequently, papers on the international impact of domestic monetary policy have identified cross-border bank lending as a spillover channel (Cetorelli and Goldberg, 2012; Forbes and Warnock, 2012; Bruno and Shin, 2015a; 2015b; Temesvary et al., 2018).
Focusing on the bank lending channel, Takats and Temesvary (2020) identify the currency dimension of the international bank lending channel (CDIBL): a rise in interest rates associated with a reserve currency reduces cross-border lending in that currency across the globe, even among counterparties that do not use that currency as their own. More broadly, studying lending in various currencies, several papers have shown that the monetary policy of a currency issuer can also transmit into lending in that currency in foreign countries via various channels (Ongena et al., 2021; Avdjiev and Takats, 2019). Based on the CDIBL, our Hypothesis 1 posits that a tightening in the monetary policy associated with a reserve currency of lending leads to subsequently lower bilateral cross-border lending flows in that currency. These effects can be particularly strong for banking systems exposed to heightened geopolitical risk. These banks, due to the heightened uncertainty arising from geopolitical escalation, can see a disproportional rise in funding costs in global financial markets, causing them to adjust their lending flows more. Therefore, we expect the negative lending effects of monetary policy to be stronger among country pairs with higher geopolitical tensions or risk.
The second strand of literature that we build upon focuses on the impact of factors other than monetary policy on cross-border lending. While a large body of literature has studied source and borrowers’ country-specific drivers of cross-border bank lending (De Haas and van Lelyveld, 2014; Rose and Wieladek, 2014; Cetorelli and Goldberg, 2012; Giannetti and Laeven, 2012; De Haas and van Horen, 2012; Buch et al., 2014; Cerutti et al., 2015; Cerutti et al., 2017), papers that

examine the role of geopolitical risk and tensions in banks’ cross-border lending decisions are still relatively scarce. For example, Catalan et al. (2024) analyze the effects of geopolitical tensions on capital flows in a gravity model and show that rising geopolitical tensions lead to a decline and diversion of investment. Of lesser relevance for us, Goldberg and Hannaoui (2024) and Ferbermayr et al. (2020) study how geopolitical tensions and financial sanctions, respectively, affect the share of U.S. dollars in foreign official reserves. Niepmann and Shen (2024) show that when geopolitical risk increases, domestic lending by U.S. banks is negatively affected.
Other strands of the literature provide more ground for hypothesis development. For example, in the international trade literature, Bosone and Stamato (2024) show that geopolitical fragmentation weighs on international trade in manufactured goods. Febermayr et al. (2020) introduce a comprehensive global sanctions database. Syropoulos et al. (2024) update this database and document a dramatic increase in the number of sanctions over the 2019-22 period. The authors also apply a gravity model and find that bilateral trade sanctions significantly limit international trade. Afesorgbor (