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U.S. Banks and Global Liquidity

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  • Ricardo Correa
  • Wenxin Du
  • Gordon Y. Liao

Abstract

We characterize how U.S. global systemically important banks (GSIBs) supply short-term dollar liquidity in repo and foreign exchange swap markets in the post-Global Financial Crisis regulatory environment and serve as the "lenders-of-second-to-last-resort". Using daily supervisory bank balance sheet information, we find that U.S. GSIBs modestly increase their dollar liquidity provision in response to dollar funding shortages, particularly at period-ends, when the U.S. Treasury General Account balance increases, and during the balance sheet taper of the Federal Reserve. The increase in the dollar liquidity provision is mainly financed by reducing excess reserve balances at the Federal Reserve. Intra-firm transfers between depository institutions and broker-dealer subsidiaries within the same bank holding company are crucial to this type of "reserve-draining" intermediation. Finally, we discuss factors that contributed to the repo spike in September 2019 and the subseque nt response of U.S. GSIBs to recent policy interventions by the Federal Reserve.

Suggested Citation

  • Ricardo Correa & Wenxin Du & Gordon Y. Liao, 2020. "U.S. Banks and Global Liquidity," International Finance Discussion Papers 1289, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1289
    DOI: 10.17016/IFDP.2020.1289
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    Cited by:

    1. Hüser, Anne-Caroline & Lepore, Caterina & Veraart, Luitgard, 2021. "How do secured funding markets behave under stress? Evidence from the gilt repo market," Bank of England working papers 910, Bank of England.
    2. Claudia M. Buch & Linda S. Goldberg, 2021. "Complexity and Riskiness of Banking Organizations: Evidence from the International Banking Research Network," Staff Reports 966, Federal Reserve Bank of New York.
    3. Liao, Gordon Y., 2020. "Credit migration and covered interest rate parity," Journal of Financial Economics, Elsevier, vol. 138(2), pages 504-525.

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    More about this item

    Keywords

    Liquidity; Global banks; Repos; Reserves; Covered interest rate parity;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • F30 - International Economics - - International Finance - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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