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Pre-Positioning and Cross-Border Financial Intermediation

Author

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  • Nicholas K. Tabor
  • Jeffery Y. Zhang

Abstract

The benefits of cross-border financial activity are wide-ranging, from greater competition and more efficient markets to broader and more stable access to capital. During normal economic times, the official sector and private sector share an incentive to foster such cross-border financial activities. During a financial crisis, however, the short-term alignment of official- and private-sector incentives can diverge—sometimes significantly. We present a game-theoretic model of the underlying trade-offs and discuss lessons for international financial regulators, placing them in the context of the 2008 financial crisis, when challenges in cross-border cooperation both channeled and amplified financial stress. We also discuss the critical unfinished business of post-crisis regulatory measures to improve oversight of internationally active financial institutions.

Suggested Citation

  • Nicholas K. Tabor & Jeffery Y. Zhang, 2022. "Pre-Positioning and Cross-Border Financial Intermediation," Finance and Economics Discussion Series 2022-051, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2022-51
    DOI: 10.17016/FEDS.2022.051
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    More about this item

    Keywords

    Bank Capital; Bank Liquidity; Cross-Border Finance; Market Fragmentation; Pre-Positioning;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F00 - International Economics - - General - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F30 - International Economics - - International Finance - - - General

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