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Stress relief? Funding structures and resilience to the covid shock

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  • Forbes, Kristin
  • Friedrich, Christian
  • Reinhardt, Dennis

Abstract

How did funding structures—the source, instrument, currency, and counterparty location of financing—relate to the financial stress experienced in different countries and sectors during Covid-19? Banks and corporates with a higher share of funding from non-bank financial institutions (NBFIs) or in US dollars experienced significantly greater stress, while more funding in debt instruments (versus loans) or cross-border (versus domestically) did not affect resilience. Policies targeting these structural vulnerabilities (US$ swap lines and NBFI policies) were more effective at mitigating stress than policies supporting banks, even controlling for macroeconomic policies. Macroprudential regulations should prioritize exposures to NBFI and dollar funding.

Suggested Citation

  • Forbes, Kristin & Friedrich, Christian & Reinhardt, Dennis, 2023. "Stress relief? Funding structures and resilience to the covid shock," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 47-81.
    • Handle: RePEc:eee:moneco:v:137:y:2023:i:c:p:47-81
    DOI: 10.1016/j.jmoneco.2023.05.005
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    More about this item

    Keywords

    Covid-19; Financial stress; Funding structure; Non-bank financial institutions; Shadow banks;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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