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Banque Nationale De Belgique Sa — Investor Presentation (December 2024)

14 slides from Banque Nationale De Belgique Sa's investor presentation, December 2024

  1. Slide 1: Hunting for Dollars

    Hunting for Dollars P. Kloks, E. Mattille, and A. Ranaldo Discussion by Christian Kubitza (ECB) FX Workshop, December 2024 Disclaimer: The views expressed herein are those of the author and do not necessarily reflect those of the ECB.

  2. Slide 2: Motivation

    Motivation Smooth supply of USD crucial for global economy & financial stability Primary means of supplying USD to non-US entities: FX market (≥ repo market) Significant costs to obtain USD for non-US entities due to CIP deviations Figure: 1 month (red) and 1 week (blue) USD-EUR cross-currency basis

  3. Slide 3: This paper

    This paper (1) How do non-US investors manage USD funding? (2) What drives variation in CIP deviations? Empirical evidence from massive micro-level data: Regulatory constraints of non-US banks at quarter-ends ⇒ $ Repo ↓ and $ FX ↑ Main reason: repo is on balance sheet, FX is off balance sheet ⇒ FX r

  4. Slide 4: Contribution & Literature

    Contribution & Literature Traditionally: constraints in USD supply drive CIP deviations, especially at quarter-ends (Du et al. 2018) Why does cost of USD funding spike at quarter-ends, when these are not special for US banks? Recently: explore USD demand by non-US entities (Du and Huber 2024, Kubitz

  5. Slide 5: Demand vs. Supply in FX Market

    Demand vs. Supply in FX Market FX $ Borrower (= Demand) borrows $ in FX invests in $

  6. Slide 6: Demand vs. Supply in FX Market

    Demand vs. Supply in FX Market ⇔ FX $ Borrower (= Demand) CIP Arbitrageur (= Supply) borrows $ in FX borrows $ directly invests in $ lends $ in FX invests in €

  7. Slide 7: Demand vs. Supply in FX Market

    Demand vs. Supply in FX Market Impact of regulatory constraints (quarter-end): FX $ Borrower (= Demand) substitutes $ repo with $ FX borrowing

  8. Slide 8: Demand vs. Supply in FX Market

    Demand vs. Supply in FX Market Impact of regulatory constraints (quarter-end): ⇔ FX $ Borrower (= Demand) CIP Arbitrageur (= Supply) substitutes $ repo with $ FX borrowing reduces $ repo & $ FX lending

  9. Slide 9: Demand vs. Supply in FX Market

    Demand vs. Supply in FX Market Impact of regulatory constraints (quarter-end): ⇔ FX $ Borrower (= Demand) CIP Arbitrageur (= Supply) substitutes $ repo with $ FX borrowing reduces $ repo & $ FX lending ⇒ At quarter end, everyone has incentive to reduce $ repo: $ net FX borrowing ↑ & net FX lending ↓

  10. Slide 10: Who are the Arbitrageurs?

    Who are the Arbitrageurs? Euro-area subsidiaries of US banks lend FX USD to EA (Kubitza, Sigaux and Vandeweyer 2024): E.g., JP Morgan SE “significant entity” supervised by ECB ⇒ subject to EA’s quarter-end constraints ⇒ Incentive to reduce FX USD supply at quarter-end But: JP Morgan SE classified as U

  11. Slide 11: Narrowing in on Demand vs. Supply

    Narrowing in on Demand vs. Supply (1) Results suggest that demand for $ funding increases with X Zt = Regulatory constraintb,t−1 × Repo borrowingb,t−1 × 1(Quarter endt ) Non-US bank b ⇒ Alternative instrument that narrows in on quarter-end substitution effects? (2) Is variation in CIP deviation on a

  12. Slide 12: Narrowing in on Demand vs. Supply

    Narrowing in on Demand vs. Supply (1) Results suggest that demand for $ funding increases with X Zt = Regulatory constraintb,t−1 × Repo borrowingb,t−1 × 1(Quarter endt ) Non-US bank b ⇒ Alternative instrument that narrows in on quarter-end substitution effects? (2) Is variation in CIP deviation on a

  13. Slide 13: Conclusion

    Conclusion • Insightful • Amazing data • Challenges traditional narrative → pushes knowledge frontier • Well-written ⇒ Strongly recommend to read it! Thank you for the opportunity to discuss this paper!

  14. Slide 14: References

    References Du, W. and A. Huber (2024). Dollar asset holding and hedging around the globe. NBER Working Paper 32453. National Bureau of Economic Research. Du, W., A. Tepper, and A. Verdelhan (2018). “Deviations from Covered Interest Rate Parity”. Journal of Finance 73.3, pp. 915–957. Kubitza, C., J.-

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