Uncertainty Shocks and the Cross‐Border Funding of Banks: Unmasking Heterogeneity^a

Abstract This paper looks at the relation between uncertainty shocks and cross‐border funding of banks through the lens of a new data set. Our key innovation is to study the impact of uncertainty measures based on volatility, newspapers, and professional forecast surveys. We provide a comprehensive assessment of how cross‐border liabilities in different banking systems respond to the uncertainty measure, funding sector, country, and period. We show that the contraction of bank funding can be large and quite different along these dimensions. Volatility‐based uncertainty and nonbank funding display the strongest results, with news‐based uncertainty mattering most outside the Global Financial Crisis.