Non-US banks' claims on the Federal Reserve

Non-US banks' affiliates in the United States took on about half of the claims on the Federal Reserve that it created to pay for its large-scale bond purchases. They did so largely through uninsured branches unaffected by a new Federal Deposit Insurance Corporation charge on wholesale funding payable by US-chartered banks. These branches funded the reserves by drawing from their affiliates abroad. Thus, counterintuitively, large-scale bond buying by the Fed drew dollar funding into the United States from the eurodollar market. On a consolidated basis, non-US banks raised dollars by swapping other currencies and increasing dollar liabilities, even as they increased dollar claims outside the United States. In sum, seemingly small national regulatory differences led international banks to make big adjustments in their balance sheets. Looking forward, a large shift of the Fed's liabilities from banks' reserves to reverse repos with non-banks could again induce changes in the global dollar flow of funds.