The period after the Global Financial Crisis (GFC) was characterized by a considerable risk migration within global liquidity flows, away from cross-border bank lending towards international bond issuance. We show that the post-GFC shifts in the risk sensitivities of global liquidity flows are related to the tightness of the (capital and liquidity) constraints faced by international (bank and non-bank) lenders and to the migration of borrowers across type of funding. The post-GFC tightening of global bank regulatory standards led to significant increases in banks’ capitalization levels and decreased the global risk sensitivity of cross-border bank loans. By contrast, the respective risk sensitivities of international bond flows remained elevated during the post-GFC period, associated with a combination of changes in leverage in participating institutions and migration of borrowers across funding sources.

Linda S Goldberg is Financial Research Adviser at the Federal Reserve Bank of New York, following roles that include Senior Vice President, head of Global Economic Analysis, and head of the International Research function. Linda’s main areas of expertise are global banking, international capital flows, and the international roles of currencies. Linda represents the Federal Reserve Bank of New York at the Bank for International Settlements (BIS) Committee on the Global Financial System. Linda chairs the International Banking Research Network (IBRN), is a BIS Technical Advisor, a CEPR Distinguished Fellow, and an NBER Research Associate.