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.