by Bryan Hardy and Sonya Zhu
This special feature of the BIS Quarterly Review examines international banks’ deposit funding – traditional deposits, repos and interbank lending. The authors lay out a framework to interpret the observed evolution in the level and composition of this funding. Netting out interbank lending and abstracting from the effect of central bank quantitative tightening, they find that during the banking turmoil in the first quarter of 2023 the source of banks’ deposit funding rotated from the non-financial sector to non-bank financial institutions. This rotation was material in a handful of jurisdictions. In particular, residents of Switzerland moved deposits from international banks located there to domestically oriented banks. Dollar funding of banks in the United States shifted to money market funds, which then increased their (repo) dollar funding of non-US banks.