Abstract

We analyze how financial crises affect international financial integration, exploiting euro-area proprietary interbank data, crisis and monetary shocks, and loan terms to the same borrower-day by domestic versus foreign lenders. Crisis shocks reduce the supply of cross-border liquidity, with stronger volume than pricing effects, thereby impairing international financial integration. On the extensive margin, there is flight to home—but independently of quality. On the intensive margin, however, GIPS-headquartered debtor banks suffer in the Lehman crisis, but effects are stronger in the sovereign-debt crisis, especially for riskier banks. Nonstandard monetary policy improves interbank liquidity, but without fostering strong cross-border financial re-integration.