The European Debt Crisis and the Dollar Funding Gap

Jason Miu, Asani Sarkar and Alexander Tepper

No 20120808, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Against the backdrop of the ongoing debt crisis in Europe, the difficulties faced by European banks in borrowing U.S. dollars have attracted increased attention. The inability to borrow dollars has been partially responsible for European banks? decisions to sell dollar-denominated assets and reduce their lending activity in the United States, to the possible detriment of U.S. companies and global financial markets. In this post, we discuss the genesis of European banks? dollar funding gap problem and the steps taken by central banks to help fill this gap. While we focus on European banks in this post, our discussion applies more generally to global banks that rely on short-term, foreign currency borrowings.

Keywords: Dollar funding gap; central bank liquidity swaps; European banks (search for similar items in EconPapers)
JEL-codes: F00 (search for similar items in EconPapers)
Date: 2012-08-08
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