BIS国际清算银行-US-dollar-funding-markets-during-the-Covid-19-crisis---the-international-dimension_9页_721kb

BIS Bulletin No 15: US Dollar Funding Markets During the Covid-19 Crisis – The International Dimension

Core Content Overview

This BIS Bulletin examines the impact of the Covid-19 crisis on US dollar funding markets, with a focus on the international dimension. It highlights how the stress in US dollar money markets, particularly in commercial paper (CP) and certificates of deposit (CD) markets, affected non-US banks globally and how policy measures by the Federal Reserve (Fed) mitigated these strains.

Key Takeaways

• Global Impact of Domestic Disruptions: Dislocations in domestic US dollar money markets reverberated globally, especially affecting non-US banks.
• Funding Strains: Non-US banks, which rely heavily on CP/CD funding, faced severe funding strains due to the withdrawal of prime money market funds (MMFs).
• Policy Interventions: The Fed introduced several liquidity measures, including swap lines and the Money Market Mutual Fund Liquidity Facility (MMLF), which helped stabilize dollar funding markets.
• Divergence in Funding Costs: The crisis led to a significant divergence in key US dollar funding rates, with some indicating a "dollar glut" and others a "dollar shortage".
• Cross-Currency Basis: FX swap markets showed unusual basis spreads, reflecting the tension between risk-free (OIS) and unsecured (LIBOR) rates.
• Arbitrage Opportunities: International cross-currency arbitrage helped alleviate stress in core US dollar funding markets and contributed to the decline in CP/CD rates.

Funding Strains and FX Swap Markets

• The FX swap market, a critical alternative funding source, experienced significant stress during the crisis.
• FX swap spreads indicated a scramble for US dollars, with three-month FX swap rates against euro and Japanese yen collateral exceeding USD LIBOR by 85 bp and 150 bp respectively.
• The Korean won, which had no Fed swap line, showed even more extreme conditions.
• The Fed's swap line facility, activated on 15 March 2020, reduced the cost of dollar funding for banks in jurisdictions with access to these lines, leading to a narrowing of FX swap spreads.
• Despite this, the divergence between unsecured and risk-free rates persisted, creating a tug-of-war effect in FX swap pricing.

Counterparty and Maturity Shifts in MMF Portfolios

• US prime MMF outflows led to a sharp reduction in lending to non-US institutions.
• Funding became increasingly concentrated at shorter maturities, increasing rollover risk.
• Some banking systems saw a more than 20 percentage point increase in overnight and weekly funding at the expense of longer-term funding.
• Non-US banks with access to Fed swap lines benefited from lower funding costs, even compared to US banks.

Funding Cost Divergence

• The dispersion in CP/CD funding rates among banks reached levels not seen in the past decade.
• Banks in jurisdictions with Fed swap lines paid significantly less for dollar funding.
• The availability of cheap dollar funding through swap lines reduced the cost of FX swaps relative to unsecured rates.

Policy Effectiveness and Market Recovery

• The Fed's swap line network expansion to nine additional central banks improved the funding situation for non-US banks.
• The recovery in funding conditions was uneven, with banks in swap line jurisdictions benefiting more quickly.
• The use of central bank liquidity was stigma-free, as it did not signal financial weakness.
• These measures suggest that banks were not a major source of vulnerability during the crisis, in contrast to the GFC.

Conclusion

The crisis underscored the importance of US dollar funding markets to global banks and the role of central bank interventions in stabilizing these markets. The Fed's measures, particularly the swap lines, played a crucial role in mitigating funding strains and ensuring the transmission of monetary policy both domestically and internationally.

References

• Aldasoro, I, T Ehlers and E Eren (2019): "Global banks, dollar funding, and regulation", BIS Working Papers, no 708.
• Avdjiev, S, E Eren and P McGuire (2020): "Dollar funding costs during the Covid-19 crisis through the lens of the FX swap market", BIS Bulletin, no 1.
• Baba, N, R McCauley and S Ramaswamy (2009): "US dollar money market funds and non-US banks", BIS Quarterly Review, March, pp 65-81.
• Eren, E, A Schrimpf and V Sushko (2020): "US dollar funding markets during the Covid-19 crisis – the money market fund turmoil", BIS Bulletin, no 14.
• McCauley, R and C Schenk (2020): "Central bank swaps then and now: swaps and dollar liquidity in the 1960s", BIS Working Papers, no 851.
• Rime, D, A Schrimpf and O Syrstad (2017): "Segmented money markets and covered interest parity arbitrage", BIS Working Papers, no 651.