The 2011 FDIC Assessment on Banks Managed Liabilities: Interest Rate and Balance-Sheet Responses

32 Pages Posted: 20 Jun 2013

See all articles by Lawrence Kreicher

Lawrence Kreicher

Dartmouth College

Robert N. McCauley

Bank for International Settlements (BIS)

Patrick McGuire

Bank for International Settlements (BIS)

Date Written: May 1, 2013

Abstract

The global financial crisis led to discussion of corrective bank taxes to promote financial stability. This paper interprets the widening of the FDIC assessment base from deposits to assets less equity for US-chartered banks in April 2011 as such a corrective or Pigovian tax. In terms of yields, banks shifted its cost to wholesale funders, benefiting floating-rate borrowers, while the linkage between onshore and offshore dollar money markets weakened. In terms of quantities, US-chartered banks shifted funding to more stable deposits. At the same time, the US branches of non-US banks, which were unaffected by the widened assessment base, increased US assets, funding their take-up of most of the Fed's reserve injection of $600 billion offshore. Thus, a new internationally uncoordinated policy had the expected effect on US banks' funding structure, but also redistributed dollar intermediation to non-US banks that continue to rely on wholesale funding. The implication for global financial stability is at best ambiguous.

Keywords: deposit insurance, reserve balances, money markets, federal funds, repo, eurodollars, wholesale funding, flow of funds, large-scale asset purchases, Dodd-Frank

JEL Classification: E43, E52, E65, G01, G15, G21, G28

Suggested Citation

Kreicher, Lawrence and McCauley, Robert N. and McGuire, Patrick M., The 2011 FDIC Assessment on Banks Managed Liabilities: Interest Rate and Balance-Sheet Responses (May 1, 2013). BIS Working Paper No. 413. Available at SSRN: https://ssrn.com/abstract=2281900

Lawrence Kreicher (Contact Author)

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States

Robert N. McCauley

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Patrick M. McGuire

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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