Where do non-US banks obtain the funding for the large amount of US dollars they lend? Traditionally, their branches and subsidiaries in the United States were a major source of dollar funding, but the role of these affiliates has declined. Instead, dollars are increasingly raised in the home country. Where dollar funding is raised, however, is distinct from the location of the funding provider, as cross-border liabilities play a large role. In aggregate, a larger share of dollar funding is provided by US residents than is raised at foreign banks’ US branches and subsidiaries. In the light of these facts, we discuss potential challenges related to the current geography of dollar funding.
Internationally active non-US banks have substantial US dollar assets. How do they fund the $12.8 trillion of dollar liabilities that finances their dollar assets?
This article examines the geography of non-US banks’ dollar funding by focusing on two related though distinct questions: Where are dollar liabilities booked (booking location)? And where are the funding providers located (counterparty residence)?
To answer these questions, we use various breakdowns of the BIS locational banking statistics (LBS). Our unit of analysis is the national banking systems, that is, all (reporting) banks of a given nationality (eg French or Japanese banks) rather than individual banks (see Box A for more details on how the data are constructed). We focus on dollar funding obtained from third parties (ie “external” funding) and thereby exclude inter-office positions (liabilities within the same banking group).
The basic mapping of US dollar funding by non-US banks is depicted in Graph 1. The geographical location is indicated by the coloured horizontal areas. The rectangles on the liability side of the balance sheet indicate the amount of non-US banks’ dollar liabilities booked at three different types of locations: the country of the headquarters (red area), the US branches and subsidiaries (blue area) and other non-US locations (green area). As non-US banks have offices located in different parts of the world, their total dollar liabilities are the sum of liabilities booked at their headquarters and subsidiaries and branches across the globe. The location of the funding providers, or counterparties (rectangles on the right-hand side), can be in the same country (local liabilities) or a different country than the booking location (cross-border liabilities).
The full paper is available at https://www.bis.org/publ/qtrpdf/r_qt1812b.htm