A BIS report prepared by a Working Group chaired by Sally Davies (Board of Governors of the Federal Reserve System) and Christopher Kent (Reserve Bank of Australia)
[…] This report presents the Group’s findings. The growing share of the US dollar in international borrowing has been accompanied by major changes in the structure of the US dollar funding landscape. After the GFC, geographical weights have shifted and bank intermediation has ceded space to market-based finance and non-banks. Banks have become more resilient, they have lower bilateral credit exposures and access to liquidity swap lines that provide a prudent liquidity backstop. Typically, non-banks are less leveraged than banks, but have access to fewer sources of US dollar funding (including through central bank facilities). As such, they are more likely to act as amplifiers of market volatility if subjected to stresses. Limited visibility of activities of non-banks present obstacles to the assessment of systemic risk. Moreover, cross-border and cross-sector linkages complicate efforts to monitor and manage the risk of a retrenchment in cross-border liquidity. The report suggests that more complete data collection could help reduce vulnerabilities. The report also identifies regulatory and structural policy options that could further reduce certain vulnerabilities.The bulk of the work was conducted prior to the outbreak of Covid-19. The ensuing crisis validated many of the messages of the report, but it also had an important impact on US dollar funding activity. The report provides some pertinent, albeit necessarily preliminary, observations in this regard. […]
Link: New BIS Report – US dollar funding: an international perspective