IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/708.html
   My bibliography  Save this paper

Business models and dollar funding of global banks

Author

Listed:
  • Iñaki Aldasoro
  • Torsten Ehlers
  • Egemen Eren

Abstract

Since the eurozone crisis, there has been a stark divergence between European banks and Japanese banks in their dollar uses and sources. We show that these shifts have implications for the price of dollar funding. We document a "Japan Repo Premium." Japanese banks pay a premium for repos with US money market funds (MMFs), despite identical contract and risk characteristics. Using the US MMF reform as a natural experiment, we establish that Japanese banks' long maturity dollar assets generate a relatively inelastic demand for long maturity dollar borrowing. Differences in the demand for dollar funding combined with market and supply side frictions can explain these pricing differences. MMFs mainly provide short term repos and favor longer term clients for long maturity repos. Japanese banks concentrate their repo borrowing, reducing their bargaining power in order to extend their funding maturity. Our results have implications for the formation of global dollar funding networks. We provide evidence for European banksintermediating repos to Japanese banks, with economically significant estimated spreads from maturity transformation.

Suggested Citation

  • Iñaki Aldasoro & Torsten Ehlers & Egemen Eren, 2018. "Business models and dollar funding of global banks," BIS Working Papers 708, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:708
    as

    Download full text from publisher

    File URL: https://www.bis.org/publ/work708.pdf
    File Function: Full PDF document
    Download Restriction: no

    File URL: https://www.bis.org/publ/work708.htm
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mr. Fei Han & Mindaugas Leika, 2019. "Integrating Solvency and Liquidity Stress Tests: The Use of Markov Regime-Switching Models," IMF Working Papers 2019/250, International Monetary Fund.
    2. Malamud, Semyon & Eren, Egemen, 2018. "Dominant Currency Debt," CEPR Discussion Papers 13391, C.E.P.R. Discussion Papers.
    3. Valentina Bruno & Hyun Song Shin, 2019. "Dollar and Exports," BIS Working Papers 819, Bank for International Settlements.
    4. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2023. "Institutional investors, the dollar, and U.S. credit conditions," Journal of Financial Economics, Elsevier, vol. 147(1), pages 198-220.
    5. Li, Yi, 2021. "Reciprocal lending relationships in shadow banking," Journal of Financial Economics, Elsevier, vol. 141(2), pages 600-619.
    6. Auer, Raphael, 2019. "Embedded supervision: how to build regulation into blockchain finance," CEPR Discussion Papers 14095, C.E.P.R. Discussion Papers.
    7. Balke, Florian & Aldasoro, Inaki & Barth, Andreas & Eren, Egemen, 2019. "Bank Competition for Wholesale Funding: Evidence from Corporate Deposits," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203578, Verein für Socialpolitik / German Economic Association.
    8. Iñaki Aldasoro & Torsten Ehlers, 2018. "The geography of dollar funding of non-US banks," BIS Quarterly Review, Bank for International Settlements, December.
    9. Raphael A. Auer, 2022. "Embedded Supervision: How to Build Regulation into Decentralised Finance," CESifo Working Paper Series 9771, CESifo.
    10. Francesco Manaresi & Nicola Pierri, 2018. "Credit supply and productivity growth," BIS Working Papers 711, Bank for International Settlements.
    11. Stijn Claessens, 2019. "Fragmentation in global financial markets: good or bad for financial stability?," BIS Working Papers 815, Bank for International Settlements.
    12. Chatziantoniou, Ioannis & Gabauer, David & Stenfors, Alexis, 2020. "From CIP-deviations to a market for risk premia: A dynamic investigation of cross-currency basis swaps," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 69(C).
    13. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2018. "Global Investors, the Dollar, and U.S. Credit Conditions," CESifo Working Paper Series 7288, CESifo.

    More about this item

    Keywords

    global banks; dollar funding; money market funds; relationship frictions; US Money Market Fund reform;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F30 - International Economics - - International Finance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:biswps:708. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Beslmeisl (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.