The US dollar shortage in global bankingand the international policy response
Patrick McGuire and Goetz von Peter
Among the policy responses to the global financial crisis, the international provision of US dollars via central bank swap lines stands out. This paper studies the build-up of stresseson banks’ balance sheets that led to this coordinated policy response. Using the BISinternational banking statistics, we reconstruct the worldwide consolidated balance sheets of the major national banking systems. This allows us to investigate the structure of banks’global operations across their offices in various countries, shedding light on how their international asset positions are funded across currencies and counterparties. The analysisfirst highlights why a country’s “national balance sheet”, a residency-based measure, can bea misleading guide to where the vulnerabilities faced by that country’s national bankingsystem (or residents) lie. It then focuses on banking systems’ consolidated balance sheets,and shows how the growth (since 2000) in European and Japanese banks’ US dollar assetsproduced structural US dollar funding requirements, setting the stage for the dollar shortagewhen interbank and swap markets became impaired.JEL classification: F34, F55, G01, G21.Keywords: International banking, financial crises, funding risk, US dollar shortage, centralbank swap lines.
Bank for International Settlements. Patrick.McGuire@bis.org, Goetz.von.Peter@bis.org. This paper is asubstantially revised and extended version of a feature in the March 2009
BIS Quarterly Review
. The authorsthank Claudio Borio, Ben Craig, Linda Goldberg, Robert McCauley, Perry Mehrling, Leonardo Morales-Arias,Frank Packer, Frank Warnock, Philip Wooldridge and the International Financial Statistics unit at the BIS for helpful comments on earlier drafts, and gratefully acknowledge feedback from seminar participants at theBank of England, the Bank of Japan, the Hong Kong Monetary Authority, the Reserve Bank of Australia, theReserve Bank of New Zealand, and the INFINITI Conference on International Finance (Trinity College,Dublin). The views expressed are those of the authors and do not necessarily reflect those of the BIS.