Global Banks’ Dollar Funding: A Source of Financial Vulnerability
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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.
Series:
Working Paper No. 2020/113
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
Frequency:
regular
English
Publication Date:
July 3, 2020
ISBN/ISSN:
9781513549149/1018-5941
Stock No:
WPIEA2020113
Pages:
50
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