Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/293956 
Year of Publication: 
2023
Citation: 
[Journal:] Journal of Money, Credit and Banking [ISSN:] 1538-4616 [Volume:] 56 [Issue:] 1 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2023 [Pages:] 115-152
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
This paper examines the effect of dislocations in foreign currency (FX) swap markets (“CIP deviations”) on bank lending. Using data from UK banks we show that when the cost of obtaining swap-based funds in a particular foreign currency increases, banks reduce the supply of cross-border credit in that currency. This effect is increasing in the degree of banks' reliance on swap-based FX funding. Access to foreign relatives matters as banks employ internal capital markets to shield their cross-border FX lending supply from the described channel. Partial substitution occurs from banks outside the UK not affected by changes in synthetic funding costs.
Subjects: 
cross‐border bank lending
covered interest rate parity deviations
FX swaps
internal capital markets
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
Document Version: 
Published Version

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