Dollar funding and housing markets: the role of non-US global banks

Torsten Ehlers, Mathias Hoffmann and Alexander Raabe

No 1332, BIS Working Papers from Bank for International Settlements

Abstract: House prices co-move considerably across countries. We show how non-US global banks and their exposure to US dollar funding conditions help explain this comovement. When the dollar appreciates, mortgage lending and house prices decrease more in borrower countries whose non-US creditor banks are more exposed to dollar funding conditions. As US dollar funding conditions vary, borrowing country pairs with higher joint exposure to US dollar funding conditions via their non-US creditor banks exhibit a higher synchronization of mortgage credit and house price growth. We capture the exposure to dollar funding conditions by the bilateral treasury basis between the currency of the non-US global creditor banks' nationality and the US dollar, a choice that we motivate in a simple value-at-risk model. Our results identify a novel international spillover channel of US dollar funding conditions. Because it works through heterogenous dollar funding exposures among creditors, this new channel is neither linked to common-lender exposures nor to currency mismatches on borrower countries' balance sheets, typically associated with the financial channel of the exchange-rate.

Keywords: house prices; synchronization; US dollar funding; dollar cycle; US treasury basis; convenience yield; capital flows; global banks; global banking network (search for similar items in EconPapers)
JEL-codes: F34 F36 G15 G21 (search for similar items in EconPapers)
Date: 2026-02
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