Net Interoffice Accounts of Global Banks: The Role of Domestic Funding

Existing literature has identified domestic restrictive monetary policy and
deteriorating funding conditions as the predominant factors explaining the increase in net
interoffice accounts of global banks, that is, the net liabilities of parent offices due to their
related foreign offices. The purpose of this research is twofold. Firstly, it quantifies the
responsiveness of net interoffice accounts to variations in different types of domestic
funding. Secondly, the paper assesses whether the relationship between net interoffice
accounts and domestic policy-steered rates depends on cross-sectional differences in the
funding structure of global banks. Using US banks’ balance sheets data collected by the
Federal Financial Institutions Examination Council, the results highlight the importance of
domestic repo borrowings in explaining net interoffice accounts, especially for larger
banks during the crisis. On the other hand, a negative relationship between policy rates and
net interoffice accounts is observed only for those global banks with a relatively higher
share of repo borrowings.