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To understand post-crisis dollar funding markets, the growing heterogeneity of global banks dollar business models has to be the starting point 
European banks fundamentally changed their operations in the US since 2011, towards short term arbitrage; Japanese banks continued to expand their dollar loan books 3/
This is, inter alia, reflected in the weighted average maturity of their trades with MMFs (JP preference for longer term funding) 4/
The MMF sector is, in turn, very concentrated: a few fund families account for the lion's share of the market. The MMF reform substantially increased concentration in non-repo (CP, CD, ABCP) segment 5/
JP banks' repo borrowing is very concentrated (50% from their top fund family counterparty, 70% from the top 2); non-repo borrowing more diversified than other banks 6/
The markets in which global banks and MMFs interact are OTC --> bargaining power, outside options matter a lot for pricing
Relative bargaining power differs depending market shares, and more
importantly, on how diversification in set of counterparties 7/
Relative bargaining power differs depending market shares, and more
importantly, on how diversification in set of counterparties 7/
We document a "Japan repo premium": JP banks pay a price for repos with MMFs *in excess* of the risk premium reflecting bank and contract characteristics 8/
We identify bargaining power in repos using the window-dressing of European banks at quarter-ends (due to different implementation of leverage ratio), as well as the Overnight Repurchase Facility (ON RRP) of the Fed 9/ @DanielaGabor
@DanielaGabor In the non-repo market similar bargaining power forces are at play. Given their higher diversification, JP banks pay in fact a discount after controlling for relevant bank and contract characteristics 10/
@DanielaGabor We identify bargaining power in non-repo market using the MMF reform as natural experiment, exploiting heterogeneity in fund conversion from prime to government funds --> by just staying in market, funds from top 5 fund families saw market share rise 11/
@DanielaGabor Enter another interesting graph: all but JP banks are repo intermediaries (in particular FR banks); JP banks only do repos; yet MMF-provided repos make up around 10% on average of JP's repos (around 50% for FR, CA banks) 12/
@DanielaGabor Implication: opportunities for repo intermediation emerge (by standing in between MMFs and JP banks, doing maturity transformation) --> estimated spreads from such arbitrage: 16 basis points
Hypothesis: FR banks intermediate repos to JP banks 13/
Hypothesis: FR banks intermediate repos to JP banks 13/
@DanielaGabor Identification: window-dressing by FR banks.
--> FR banks quarter-end temporary retreat from repo market explains more than 65% of the contemporaneous variation in the JPY/USD cross-currency basis
$10 billion reduction in FR repos --> 6.5 bp wider 1-week (only 1w) yen basis 14/
--> FR banks quarter-end temporary retreat from repo market explains more than 65% of the contemporaneous variation in the JPY/USD cross-currency basis
$10 billion reduction in FR repos --> 6.5 bp wider 1-week (only 1w) yen basis 14/
@DanielaGabor Broader implications from paper: potential unintended consequences of regulation.
#1 MMF reform lead to more concentration (on an already concentrated market); this has pricing implications 15/
#1 MMF reform lead to more concentration (on an already concentrated market); this has pricing implications 15/
@DanielaGabor # 2 Inconsistent implementation of Basel III leverage ratio across jurisdictions has consequences for financial markets; i. quarter-end (as opposed to daily-averaging) reporting creates reshuffling of 100s of USD bln at quarter ends 16/
@DanielaGabor ii. this creates undue advantages for market participants by opening up possibilities for regulatory arbitrage; iii. it leads to complex and opaque dollar repo intermediation networks between global banks 17/17
