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The US dollar shortage in global banking and the international policy response

The US dollar shortage in global banking and the international policy response

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Published by babstar999
The US dollar shortage in global banking and the international policy response
by Patrick McGuire and Goetz von Peter

Working Papers No 291
October 2009
Abstract:

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 stresses on banks' balance sheets that led to this coordinated policy response. Using the BIS international 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 analysis first highlights why a country's "national balance sheet", a residency-based measure, can be a misleading guide to where the vulnerabilities faced by that country's national banking system (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 assets produced structural US dollar funding requirements, setting the stage for the dollar shortage when interbank and swap markets became impaired.

JEL Classification Numbers: F34, F55, G01, G21

source:http://www.bis.org/publ/work291.htm
The US dollar shortage in global banking and the international policy response
by Patrick McGuire and Goetz von Peter

Working Papers No 291
October 2009
Abstract:

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 stresses on banks' balance sheets that led to this coordinated policy response. Using the BIS international 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 analysis first highlights why a country's "national balance sheet", a residency-based measure, can be a misleading guide to where the vulnerabilities faced by that country's national banking system (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 assets produced structural US dollar funding requirements, setting the stage for the dollar shortage when interbank and swap markets became impaired.

JEL Classification Numbers: F34, F55, G01, G21

source:http://www.bis.org/publ/work291.htm

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Published by: babstar999 on Nov 08, 2011
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BIS Working Papers
No 291
The US dollar shortagein global banking andthe international policyresponse
by
Patrick McGuire and
Götz
v
on Peter 
Monetary and Economic Department
October 2009JEL classification: F34, F55, G01, G21.Keywords: International banking, financial crises, funding risk, USdollar shortage, central bank swap lines.
 
 
BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and arepublished by the Bank. The papers are on subjects of topical interest and are technical incharacter. The views expressed in them are those of their authors and not necessarily theviews of the BIS.Copies of publications are available from:Bank for International SettlementsCommunicationsCH-4002 Basel, SwitzerlandE-mail: publications@bis.orgFax: +41 61 280 9100 and +41 61 280 8100This publication is available on the BIS website (www.bis.org).©
Bank for International Settlements 2009. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated.
 ISSN 1020-0959 (print)ISBN 1682-7678 (online)
 
 
iii
 
The US dollar shortage in global bankingand the international policy response
Patrick McGuire and Goetz von Peter 
1
 
Abstract
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.
1
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.

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