Global financial cycles and the problem of regulation of international capital flows: the role of banks and macroprudence policy in responding to crises

The aggravation of crisis processes in the global financial system produces a request to find tools to eliminate the systemic risk of global instability, which arises primarily through the interaction between the global financial cycle, key global factors (global risk and monetary policy in major economies) and cross-border banking activities. The situation in the monetary and financial spheres of countries with large open economies has a powerful impact on the economic situation, exacerbating the asymmetries of interaction on a global scale, which actualizes the need for macroprudential authorities in countries with small open economies to take preventive measures to maintain internal balance from destructive crisis processes in key economies of the world. The article provides a comprehensive analysis of approaches to substantiating the channels of mutual influence of the internal financial cycle, the global financial cycle and macroprudential policy, and also assesses the potential of macroprudential policy in smoothing out procyclical processes in order to stimulate economic growth. The interdependence of global banks on the dynamics of the global financial cycle and vice versa is determined, because global banks determine the specifics of the manifestations of the latter, given the way they manage their liquidity on a global scale, thereby contributing to the international transmission of shocks. It is found that the existence of a domestic capital market for global banks exacerbates the international spread of domestic liquidity shocks due to the strategic complementarity effect arising from strategic interactions between banks, other financial institutions and agents, which can increase systemic vulnerabilities during booms and busts due to increased competition between banks. It was revealed that the impact of the global financial cycle on the internal financial environment of banks and financial institutions through the mechanisms of external obligations of national banks and the determination of the cost of financing affects the availability of loans for companies and households. This means that the economies of small open economies are more vulnerable to external shocks and are affected by financing conditions determined in the world's financial centers. Under these conditions, the dynamics of global liquidity limits the effectiveness of national monetary policy, and therefore the demand for effective international coordination of macroprudential policy becomes even more urgent. The need to revise monetary policy in order to increase its ability to mitigate the risks of financial instability depends on: (1) the effectiveness of macroprudential policy (for example, the ability to manage the financial cycle); (2) the contribution of monetary policy (including its traditional and non-traditional instruments) to the exacerbation of financial instability; (3) the degree of independence of monetary policy, especially during a crisis.