Spillovers of Funding Dry-Ups

55 Pages Posted: 8 Nov 2018 Last revised: 6 Dec 2019

See all articles by Iñaki Aldasoro

Iñaki Aldasoro

Bank for International Settlements (BIS)

Florian Balke

Goethe University Frankfurt - Department of Finance

Andreas Barth

Goethe University Frankfurt - Department of Finance

Egemen Eren

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: February 28, 2019

Abstract

We uncover a new channel for spillovers of funding dry-ups. The 2016 US money market fund (MMF) reform exogenously reduced unsecured MMF funding for some banks. We use novel data to trace those banks to a platform for corporate deposit funding. We show that intensified competition for corporate deposits spilled the funding squeeze over to other banks with no MMF exposure. These banks paid more for deposits, and their pool of funding providers deteriorated. Moreover, their lending volumes and margins declined and their stocks underperformed. Our results suggest that banks' competitiveness in funding markets affect their competitiveness in lending markets.

Keywords: funding dry-ups, spillovers, money market funds, corporate deposits, dollar funding, competition

JEL Classification: G21, G28

Suggested Citation

Aldasoro, Iñaki and Balke, Florian and Barth, Andreas and Eren, Egemen, Spillovers of Funding Dry-Ups (February 28, 2019). Available at SSRN: https://ssrn.com/abstract=3280876 or http://dx.doi.org/10.2139/ssrn.3280876

Iñaki Aldasoro

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Florian Balke (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt, DE 60629
Germany

Andreas Barth

Goethe University Frankfurt - Department of Finance ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt, 60629
Germany

Egemen Eren

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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