The 2011 FDIC assessment on banks managed liabilities: interest rate and balance-sheet responses
AbstractThe 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.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 413.
Length: 32 pages
Date of creation: May 2013
Date of revision:
Deposit insurance; reserve balances; money markets; federal funds; repo; eurodollars; wholesale funding; flow of funds; large-scale asset purchases; Dodd-Frank;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-BAN-2013-06-04 (Banking)
- NEP-IAS-2013-06-04 (Insurance Economics)
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