What is the major determinant of cross-border banking flows?

• We study the cross-border credit flows from global banks.
• We decompose banking flows into push factors and pull factors.
• A Bayesian dynamic factor model is employed.
• Our results show push factor is an important determinant for overall flows.
• At the same time, main determinants of flows are largely heterogeneous across countries.

This study examines the major determinant of cross-border credit flows through global banks across 70 countries. Employing a Bayesian dynamic latent factor model, we decompose volatilities of banking flows into the contribution of a global common factor, regional common factor, and country-specific factor. The results indicate that the global and regional common factor explains about 40–50 percent of volatility in overall cross-border banking flows. In particular, the contribution of the global common factor increased in the 2000s. Simultaneously, main determinants are largely heterogeneous across countries: this implies that the desirable policy response to credit inflows may differ for each host country.