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Arbitrage Capital of Global Banks

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  • ALYSSA ANDERSON
  • WENXIN DU
  • BERND SCHLUSCHE

Abstract

We study the impact of the U.S. money market fund reform implemented in October 2016 on global banks' funding supply and business activities. We show that the reform induced a large negative wholesale funding shock for global banks. In contrast to the conventional bank lending channel, the primary response of global banks to the reform was a cutback in arbitrage positions that relied on unsecured funding, rather than a reduction in loan provision. We discuss the role of postcrisis liquidity regulations and unconventional monetary policy in explaining our findings, and implications for banks' business models and deposit competition.

Suggested Citation

  • Alyssa Anderson & Wenxin Du & Bernd Schlusche, 2025. "Arbitrage Capital of Global Banks," Journal of Finance, American Finance Association, vol. 80(5), pages 2591-2638, October.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:5:p:2591-2638
    DOI: 10.1111/jofi.13478
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