Determinants of Non-Core Liabilities of Banks in Emerging Markets in the Post-Crisis Era

Abstract

The level of the non-core liabilities of the aggregate banking sector serves an indicator of systemic risk in an interconnected banking system. In this paper, we disentangle the non-core liabilities of the banking system of four selected emerging markets into demand-pull and supply-push components from 2004 to 2015. Our results from structural vector autoregressions imply that, in the wake of the crisis, worsening demand conditions in the recipient countries were the main determinants of the decline in cross border flows. However, once the unconventional policy measures by the advanced economies were put into effect, the proliferation of global liquidity worked as a push factor for cross border flows. Moreover, after the FED’s tapering signal in mid2013, country-specific macroprudential tools in emerging economies determined the direction of capital flows to these economies. Our results provide valuable information regarding the appropriate design of countercyclical macroprudential policies.