Journal of International Economics, Vol. 137, 2022

Spillovers of Funding Dry-ups

We uncover a new channel for spillovers of funding dry-ups. The US money market fund (MMF) reform led to an exogenous reduction in unsecured MMF funding for some banks. We use novel data to trace those banks to a corporate deposit funding platform. As they sought to replace the lost dollar funding, the funding squeeze spilled over to other banks with no MMF exposure. The latter paid more for corporate dollar deposits, and their pool of funding providers deteriorated. Their dollar lending volumes and margins declined. Our results suggest banks’ competitiveness in funding markets affect their competitiveness in lending markets.