Offshore financial centres and banks’ funding responses to liquidity shocks

Abstract This article rethinks financial embeddedness by examining how transnational banks respond to funding pressures through the infrastructures of offshore financial centres (OFCs). Using hand-collected information, we construct a novel dataset of European banks across six Eurozone countries from 2009–15. We show that during the sovereign debt crisis, banks engaged in latent network activation, mobilizing offshore conduit arrangements to secure foreign currency funding as market conditions tightened, even when official liquidity support was available. We argue that embeddedness in global finance is dynamic and crisis-contingent, since relationships and organizational infrastructures that appear peripheral in stable periods can become decisive under stress. OFCs emerge not as passive enablers of regulatory arbitrage, but as active infrastructures used by global banks to access cross-border liquidity when conventional funding channels become impaired. This has important implications for the governance and oversight of cross-border liquidity flows and off-balance-sheet funding structures.