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U.S. Banks and Global Liquidity

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Speaker: Wenxin Du - University of Chicago
Event date: Thursday, 06 May 2021 03:00 pm - 04:15 pm
Place: Online Event (Webex)

The Department of Finance of the University of Luxembourg is pleased to invite you to this seminar with Wenxin Du from University of Chicago

Abstract
We document a new intermediation method, “reserve-draining intermediation”, which has been dominant in global banks’ provision of dollar liquidity post-Global Financial Crisis. Using daily supervisory data, we show that large U.S. banks use their excess reserves at the Federal Reserve to finance short-term lending in the repo and foreign exchange swap markets in response to dollar funding shortages. Intra-firm liquidity sharing between depository institutions and broker-dealer subsidiaries within the same bank holding company are crucial to reserve-draining intermediation. Our results highlight the importance of a large Federal Reserve balance sheet even when interest rates are above the zero-lower bound.

This event will be hosted online. Please register via Eventbrite.

This event is supported by the Luxembourg National Research Fund (19/14002698)