Research / BFI Working PaperJun 29, 2020

U.S. Banks and Global Liquidity

Ricardo Correa, Wenxin Du, Gordon Liao

We characterize how U.S. global systemically important banks (GSIBs) supply short-term dollar liquidity in repo and foreign exchange swap markets in the post-Global Financial Crisis regulatory environment and serve as the “lenders-of-second-to-last-resort”. Using daily supervisory bank balance sheet information, we find that U.S. GSIBs modestly increase their dollar liquidity provision in response to dollar funding shortages, particularly at period-ends, when the U.S. Treasury General Account balance increases, and during the balance sheet taper of the Federal Reserve. The increase in the dollar liquidity provision is mainly financed by reducing excess reserve balances at the Federal Reserve. Intra-firm transfers between depository institutions and broker-dealer subsidiaries within the same bank holding company are crucial to this type of “reserve-draining” intermediation. Finally, we discuss factors that contributed to the repo spike in September 2019 and the subsequent response of U.S. GSIBs to recent policy interventions by the Federal Reserve.

More Research From These Scholars

BFI Working Paper May 10, 2021

CIP Deviations, the Dollar, and Frictions in International Capital Markets

Wenxin Du, Jesse Schreger
Topics:  Financial Markets
BFI Working Paper Aug 26, 2019

Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy

Wenxin Du, Carolin Pflueger, Jesse Schreger
Topics:  Monetary Policy
BFI Working Paper Jul 14, 2022

Intermediary Balance Sheets and the Treasury Yield Curve

Wenxin Du, Benjamin M. Hébert, Wenhao Li
Topics:  Monetary Policy, Financial Markets