Bank Competition for Wholesale Funding: Evidence from Corporate Deposits
Title: Bank Competition for Wholesale Funding: Evidence from Corporate Deposits
Authors: Iñaki Aldasoro (BIS), Florian Balke (Goethe University), Andreas Barth (Goethe University), and Egemen Egen (BIS)
Abstract: We study bank competition in wholesale funding markets. Following the US money market fund reform, several banks lost a significant amount of unsecured dollar funding. Using auction-level data on a large corporate deposit market in Europe and a difference-in-differences set-up, we trace how these banks substituted the funding loss by tapping the corporate dollar deposit market. Banks that lost dollar funding due to the reform crowd-out other banks (not directly affected by the reform). MMF-affected banks increase their market share both at the intensive and extensive margins, whereas banks not affected by the reform need to pay significantly higher prices to meet their funding needs. The crowding out has an important impact on bank performance of the banks not directly affected by the reform, which show a 30-36 percentage points lower stock price growth compared to affected banks, while CDS spreads remained largely unaffected. Our results therefore suggest that investors seem to expect that the crowding out in funding markets potentially leads to a crowding out in lending markets.