Global banks and the international monetary and financial system: a minskyan approach

This thesis examines the role of global banks in shaping the international monetary and financial system, conceptualising it as a network of interlocking balance sheets in which globally active banks issue US dollar liabilities that function as cross-border means of payment and settlement. The distribution of these liabilities is uneven and cyclical, reflecting institutional hierarchies and the evolving financial structure of global banks. The central question motivating the thesis is how this US dollar-dominated network generates and transmits global shocks and external vulnerability.

The first chapter explores theoretically how internationally accepted US dollars are created through global banks' credit operations, shaping countries' costs and ability to participate in cross-border transactions. It examines how global banks determine cross-country credit conditions, based on their pricing decisions and assessments of borrowers' creditworthiness. It argues that fluctuations in their desired balance sheet structures and expectations about borrowers' access to US dollars can act as sources of exogenous pressures on countries' balance of payments.

The second chapter provides empirical evidence that idiosyncratic shifts in global banks' leverage act as an independent driver of global liquidity. Using Granular Instrumental Variables and Instrumented Principal Component Analysis on 34 Global Systemically Important Banks, it constructs an instrument from size-weighted idiosyncratic shocks to leverage. Panel local projections for 74 economies show that positive leverage shocks appreciate exchange rates, boost inflows, and lower sovereign US dollar spreads, indicating that global banks are not only transmission channels but also generators of systemic shocks.

The third chapter examines how hierarchical funding fragilities create systemic risks to global financial stability. Through a balance-sheet framework of layered settlements that combines Minskyan and network perspectives, it shows how the structure and density of funding relations determine banks' hierarchical positions and risks. Network visualisations of cross-border funding, together with institutional analysis of infrastructures, business models, and regulation, reveal an asymmetric system in which US banks benefit from integrated onshore–offshore positions and privileged access to key infrastructures, while non-US banks rely more on wholesale, swap-based, and offshore funding.