Global Banks, Dollar Funding, and Regulation

78 Pages Posted: 8 May 2019

See all articles by Iñaki Aldasoro

Iñaki Aldasoro

Bank for International Settlements (BIS)

Torsten Ehlers

Bank for International Settlements (BIS)

Egemen Eren

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

Date Written: April 9, 2019

Abstract

We document that non-US global banks are increasingly heterogeneous in their dollar banking activities and dollar demand. We study the implications for dollar funding markets using data on security-level money market fund holdings. We find that funds charge higher prices to banks with weaker bargaining positions, consistent with theories of over-the-counter markets. For identification, we use exogenous variation in bargaining power due to window-dressing at quarter-ends and the US money market fund reform. We show that post-crisis regulations have reduced competition in certain segments of dollar funding markets and have generated incentives for regulatory arbitrage, with potentially adverse unintended consequences.

Keywords: Global Banks, Dollar Funding, Regulation, Money Market Funds, Window-Dressing, US MMF Reform

JEL Classification: G15, F30, G21, G28

Suggested Citation

Aldasoro, Iñaki and Ehlers, Torsten and Eren, Egemen, Global Banks, Dollar Funding, and Regulation (April 9, 2019). Available at SSRN: https://ssrn.com/abstract=3368973 or http://dx.doi.org/10.2139/ssrn.3368973

Iñaki Aldasoro

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Torsten Ehlers

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Egemen Eren (Contact Author)

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

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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