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Global banks, dollar funding, and regulation

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  • Aldasoro, Iñaki
  • Ehlers, Torsten
  • Eren, Egemen

Abstract

We document significant and persistent price dislocations in secured and unsecured wholesale dollar funding markets between US money market funds (MMFs) and highly-rated global banks. We show that bargaining frictions affect prices in these key short-term dollar funding markets. Our identification strategy relies on a number of quasi-experiments, including the US MMF reform and quarter-end window-dressing by European banks. Post-crisis regulations have reduced competition in these markets and have generated incentives for regulatory arbitrage, which affect bargaining power and prices. Our results also highlight substantial heterogeneity across global banks of different nationalities in their behavior in dollar funding markets.

Suggested Citation

  • Aldasoro, Iñaki & Ehlers, Torsten & Eren, Egemen, 2022. "Global banks, dollar funding, and regulation," Journal of International Economics, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:inecon:v:137:y:2022:i:c:s0022199622000411
    DOI: 10.1016/j.jinteco.2022.103609
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    Cited by:

    1. Luis Garcia & Ulf Lewrick & Taja Sečnik, 2023. "Window Dressing and the Designation of Global Systemically Important Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 64(2), pages 231-264, October.
    2. Schwartz, Herman M., 2024. "Triffin reloaded: The matrix of contradictions around global quasi-state money," MPIfG Discussion Paper 24/3, Max Planck Institute for the Study of Societies.
    3. Egemen Eren & Philip Wooldridge, 2022. "The role of non-bank financial institutions in cross-border spillovers," BIS Papers, Bank for International Settlements, number 129.
    4. Ferreira, Thiago R.T. & Shousha, Samer, 2023. "Determinants of global neutral interest rates," Journal of International Economics, Elsevier, vol. 145(C).
    5. Sebastian Doerr & Egemen Eren & Semyon Malamud, 2023. "Money Market Funds and the Pricing of Near-Money Assets," Swiss Finance Institute Research Paper Series 23-04, Swiss Finance Institute.
    6. Matteo Aquilina & Andreas Schrimpf & Karamfil Todorov, 2023. "CP and CDs markets: a primer," BIS Quarterly Review, Bank for International Settlements, September.
    7. Aldasoro, Iñaki & Balke, Florian & Barth, Andreas & Eren, Egemen, 2022. "Spillovers of funding dry-ups," Journal of International Economics, Elsevier, vol. 137(C).
    8. Manac, Radu-Dragomir & Banti, Chiara & Kellard, Neil, 2024. "How does standardization affect OTC markets in the long term? Evidence from the small bang reform in the CDS market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 96(C).
    9. Huber, Amy Wang, 2023. "Market power in wholesale funding: A structural perspective from the triparty repo market," Journal of Financial Economics, Elsevier, vol. 149(2), pages 235-259.

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    More about this item

    Keywords

    Global banks; Dollar funding; Money market funds; Regulatory arbitrage; US MMF 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

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