 Business models and dollar funding of global banksIñaki Aldasoro, Torsten Ehlers and Egemen Eren No 708, BIS Working Papers from Bank for International Settlements Abstract: Since the eurozone crisis, there has been a stark divergence between European banks and Japanese banks in their dollar uses and sources. We show that these shifts have implications for the price of dollar funding. We document a "Japan Repo Premium." Japanese banks pay a premium for repos with US money market funds (MMFs), despite identical contract and risk characteristics. Using the US MMF reform as a natural experiment, we establish that Japanese banks' long maturity dollar assets generate a relatively inelastic demand for long maturity dollar borrowing. Differences in the demand for dollar funding combined with market and supply side frictions can explain these pricing differences. MMFs mainly provide short term repos and favor longer term clients for long maturity repos. Japanese banks concentrate their repo borrowing, reducing their bargaining power in order to extend their funding maturity. Our results have implications for the formation of global dollar funding networks. We provide evidence for European banksintermediating repos to Japanese banks, with economically significant estimated spreads from maturity transformation. Keywords: global banks; dollar funding; money market funds; relationship frictions; US Money Market Fund reform (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:708 Access Statistics for this paper More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC. |
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