Viral Acharya, Gara Afonso, Anna Kovner, 30 June 2013

Dollars are the lifeblood of global finance, so it matters that US and non-US banks have different access to dollar funding. This column shows that the 2007 funding shock disproportionately affected non-US banks, and that non-US banks transmitted this shock to US borrowers. The results suggest that access to deposits and advances from Federal Home Loan Banks can help stabilise the banking sector and the transmission channel in a crisis. The ex-post efficacy gain, however, must be weighed against any ex-ante moral hazard.

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