Asynchronous Monetary Policies and International Dollar Credit

This paper presents a theoretical model in which the supply of international dollar credit by a global bank is responsive to unconventional monetary policies (UMPs) both in the US and its home country, the functioning of the FX swap market and the bank's default risk. The theoretical model is tested using two unique confidential datasets. The results suggest that the contractionary effect of US monetary normalisation on global liquidity would be partly offset by the expansionary effect of UMPs in Japan and the euro-area. However, a stress testing exercise shows that global liquidity would be seriously disrupted if normalisation of monetary policy in the US leads to financial market dislocation, in particular in the FX swap market. Finally, this study finds that global banks' risk-taking attitude, credit risk exposure, and the business model of their overseas offices are important factors affecting how dollar credit supplied by international banks would respond to UMPs