Global Banks’ Dollar Funding: A Source of Financial Vulnerability

By Adolfo Barajas, Andrea Deghi, Claudio Raddatz, Dulani Seneviratne, Peichu Xie, Yizhi Xu

July 3, 2020

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Adolfo Barajas, Andrea Deghi, Claudio Raddatz, Dulani Seneviratne, Peichu Xie, and Yizhi Xu. Global Banks’ Dollar Funding: A Source of Financial Vulnerability, (USA: International Monetary Fund, 2020) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Leading up to the global financial crisis, US dollar activity by global banks headquartered outside the United States played a crucial role in transmitting shocks originating in funding markets. Although post-crisis regulation has improved banking systems’ resilience, US dollar funding remains a global vulnerability, as evidenced by strains that reemerged in March 2020 in the midst of the COVID-19 crisis. We show that shocks to US dollar funding costs lead to financial stress in the home economies of these global non-US banks, and to spillovers to borrowers, especially emerging economies. US dollar funding vulnerability amplifies these negative effects, while some policy-related factors act as mitigators, such as swap line arrangements between central banks and international reserve holdings. Thus, these vulnerabilities should be monitored and, to the extent possible, controlled.

Subject: Asset and liability management, Banking, Central banks, Commercial banks, Currencies, Financial institutions, Financial regulation and supervision, International reserves, Liquidity indicators, Liquidity management, Liquidity requirements, Money

Keywords: Asset share, Assets ratio, Banking sector, Commercial banks, Cross-currency basis, Currencies, Dollar, Financial stability risks, Funding cost, Global, Global banks, Home economy, International liquidity, International reserves, Liquidity management, Liquidity ratio, Liquidity requirements, Return on assets, Swap line, U.S. dollar, US dollar funding, USD assets, USD funding, USD lending, USD liquidity ratio, Vulnerability indicator, WP, X CCFR

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/113
Stock No:

WPIEA2020113
ISBN:

9781513549149
ISSN:

1018-5941

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