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Discussion Paper
Who’s Borrowing and Lending in the Fed Funds Market Today?
The Federal Open Market Committee (FOMC) communicates the stance of monetary policy through a target range for the federal funds rate, which is the rate set in the market for uncollateralized short-term lending and borrowing of central bank reserves in the U.S. Since the global financial crisis, the market for federal funds has changed markedly. In this post, we take a closer look at who is currently trading in the federal funds market, as well as the reasons for their participation.
Discussion Paper
The European Debt Crisis and the Dollar Funding Gap
Against the backdrop of the ongoing debt crisis in Europe, the difficulties faced by European banks in borrowing U.S. dollars have attracted increased attention. The inability to borrow dollars has been partially responsible for European banks? decisions to sell dollar-denominated assets and reduce their lending activity in the United States, to the possible detriment of U.S. companies and global financial markets. In this post, we discuss the genesis of European banks? dollar funding gap problem and the steps taken by central banks to help fill this gap. While we focus on European banks in ...
Report
Central bank dollar swap lines and overseas dollar funding costs
Following a scarcity of dollar funding available internationally to financial institutions, in December 2007 the Federal Reserve began to establish or expand Temporary Reciprocal Currency Arrangements with fourteen other central banks. These central banks had the capacity to use the swap facilities to provide dollar liquidity to institutions in their jurisdictions. This paper presents the developments in the dollar swap facilities through the end of 2009. The facilities were a response to dollar funding shortages outside the United States and were effective at making dollars more broadly ...
Journal Article
Central bank dollar swap lines and overseas dollar funding costs
In the decade prior to the financial crisis, foreign banks? exposure to U.S.-dollar-denominated assets rose dramatically. When the crisis hit in 2007, the banks? access to dollar funding came under severe duress, with potentially dire consequences for global financial markets that could also spread to U.S. markets. The Federal Reserve responded in December 2007 by establishing temporary reciprocal currency swap lines, or facilities, with foreign central banks designed to ameliorate dollar funding stresses overseas. Drawing on rigorous analysis of the swaps, as well as insights of other ...
Discussion Paper
A New Set of Indicators of Reserve Ampleness
The Federal Reserve (Fed) implements monetary policy in a regime of ample reserves, where short-term interest rates are controlled mainly through the setting of administered rates, and active management of the reserve supply is not required. In yesterday’s post, we proposed a methodology to evaluate the ampleness of reserves in real time based on the slope of the reserve demand curve—the elasticity of the federal (fed) funds rate to reserve shocks. In this post, we propose a suite of complementary indicators of reserve ampleness that, jointly with our elasticity measure, can help ...