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Global Banks’ Dollar Funding: A Source of Financial Vulnerability
Author:
Mr. Adolfo Barajas
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Andrea Deghi null

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Claudio Raddatz null

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Peichu Xie null

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Yizhi Xu null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 113
Language:
English
Publication Date:
03 Jul 2020
DOI:
https://doi.org/10.5089/9781513549149.001
ISBN:
9781513549149
ISSN:
1018-5941
Pages:
50
Keywords:
WP; dollar; return on assets; USD lending; U.S. dollar; banking sector; liquidity ratio; swap line; funding cost; Commercial banks; Currencies; Liquidity management; Liquidity requirements; International reserves; Global; US dollar funding; financial stability risks; cross-currency basis; global banks; international liquidity; home economy; USD funding; USD assets; vulnerability indicator; USD liquidity ratio; asset share; x CCFR; assets ratio
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund