Global Banks and Synthetic Funding: The Benefits of Foreign Relatives

This paper provides novel empirical evidence on the effect of dislocations in FX swap markets (‘CIP deviations’) bank lending. Using balance sheet data from UK banks we show that when cost obtaining swap-based funds a particular foreign currency increases, reduce supply cross-border credit currency. is increasing degree banks’ reliance funding. Notably, high access to alternative funding sources (on sheet) shield lending described channel, but only if such occurs via internal capital markets. There some substitution outside which are not affected by changes accessing dollars or euros synthetically.