Global Banks, Dollar Funding, and Regulation

Abstract

We document that non-US global banks are increasingly heterogeneous in their dollar banking activities and dollar demand. We study the implications for dollar funding markets using data on security-level money market fund holdings. We find that funds charge higher prices to banks with weaker bargaining positions, consistent with theories of over-the-counter markets. For identification, we use exogenous variation in bargaining power due to window-dressing at quarter-ends and the US money market fund reform. We show that post-crisis regulations have reduced competition in certain segments of dollar funding markets and have generated incentives for regulatory arbitrage, with potentially adverse unintended consequences.