BIS国际清算银行-Spillovers-of-funding-dry-ups_57页_1mb

Summary of BIS Working Paper No. 810: Spillovers of Funding Dry-ups

Core Content

This paper explores the spillover effects of a funding dry-up in the money market fund (MMF) market, focusing on the 2016 US MMF reform and its impact on corporate deposit markets and bank lending behavior. The study identifies a new channel through which funding shocks in one market can spill over to others, particularly affecting banks that are not directly involved in the initial funding shortage.

Main Points

1. Policy Event and Funding Shock

• The 2016 US MMF reform aimed to reduce the run-prone nature of MMFs by requiring them to switch from a stable to a floating net asset value (NAV) and introduce redemption gates and fees.
• This reform led to a significant reduction in unsecured dollar funding for global banks with MMF exposure, resulting in an aggregate loss of around $350 billion in unsecured dollar funding between April and October 2016.

2. Funding Market Segmentation

• The paper highlights the segmentation of funding markets, where banks may have different preferences for funding sources.
• Banks active in both MMF and corporate deposit markets tend to prefer stable, long-term funding. MMF funding is generally more expensive but more stable compared to corporate deposits, which are typically shorter-term and less costly.

3. Spillover Effects

• The reform caused MMF banks to substitute into corporate deposit funding, increasing competition in the corporate deposit market.
• This competition spilled over to non-MMF banks, which faced higher deposit rates and a deterioration in their pool of funding providers.
• Non-MMF banks also experienced a decline in lending volumes and margins, and their stock performance underperformed MMF banks.

4. Empirical Design

• The study uses a difference-in-differences approach to analyze the effects of the reform.
• It combines three key datasets:
  • Transaction-level MMF holdings data from SEC filings to identify funding shocks.
  • Corporate deposit auction data from a large European trading platform, providing bid-level information.
  • Syndicated loan data from Dealoric to study changes in lending behavior and pricing.

5. Key Findings

• After the reform, non-MMF banks paid higher deposit rates and had a reduced probability of winning auctions with stable funding providers.
• The spillover effects were specific to dollar deposits, suggesting that the observed changes were due to the reform and not unobserved heterogeneity.
• Lending volumes and rates for non-MMF banks declined, indicating a reduction in loan demand rather than a decrease in supply.
• Stock performance of MMF banks outperformed non-MMF banks by 12-15 percentage points over a 3-month period, consistent with the loss of competitiveness in lending markets.

Key Information

6. Market Dynamics and Competition

• The reform intensified competition in corporate deposit markets, as MMF banks shifted their funding sources.
• Banks that are active in both MMF and corporate deposit markets are preferred by firms, especially stable funding providers.
• The competition for deposits affects the liability structure of banks and, consequently, their lending competitiveness.

7. Literature Contribution

• The paper contributes to the literature on funding market stress and spillovers, highlighting a new mechanism: market substitution and intensified competition.
• It is the first study to examine the linkages between MMF and corporate deposit funding.
• The findings support the theoretical framework of Stiglitz and Weiss (1981) and Diamond (1984), which emphasize the interrelation between liability and asset market competitiveness.

8. Implications

• The results suggest that banks' competitiveness in funding markets directly affects their competitiveness in lending markets.
• The spillover effects from MMF funding dry-ups can have real economic consequences, including reduced lending and lower profitability.
• The reduction in stable funding access for non-MMF banks is a key factor in their underperformance in the lending and equity markets.

Conclusion

The study demonstrates that a funding dry-up in one market can have spillover effects in others, particularly when banks substitute into alternative funding sources. These spillovers are driven by intensified competition and affect bank lending, riskiness, and stock performance. The findings underscore the importance of stable funding sources in maintaining bank competitiveness and highlight the role of regulatory changes in shaping financial market dynamics.

Data and Methodology

9. Data Sources

• MMF data: From SEC filings, showing the initial funding shock.
• Corporate deposits data: From a European trading platform, providing auction bid-level details.
• Lending data: From Dealoric, analyzing changes in loan volumes and pricing.
• Bank characteristics and market data: From S&P Global Market Intelligence and Markit, including balance sheets, stock prices, and CDS spreads.

10. Empirical Approach

• The paper uses a difference-in-differences method to isolate the effects of the reform.
• It includes regression analysis on contract-level data to explore the differences in funding characteristics between MMF and corporate deposit markets.

Final Notes

• The platform studied is a representative sample of the global corporate deposit market, though it constitutes only a small portion of the overall market.
• The spillover effects are robust to placebo tests, which used data from other currencies to confirm the specificity of the results to dollar funding.

This paper provides a comprehensive analysis of how funding market shocks can affect bank lending behavior and financial performance, with important implications for financial stability and market competition.