Abstract: How Federal Reserve swap lines affect the cost of hedging for the real economy remains insufficiently understood, largely due to the absence of globally representative data on OTC FX derivatives. Using a new data source based on worldwide settlement records, I uncover a novel swap line pass-through channel: non-U.S. banks temporarily park swap line liquidity with U.S. dealers in the interbank FX market, reducing dealers' inventory funding needs and thereby improving effective spreads charged to the real economy. I develop a simple model of trading to show the observed dynamics may reflect either precautionary liquidity hoarding or arbitrage by non-U.S. banks, and I propose a testable hypothesis to distinguish between the two. The mechanism also reveals a broader structural role played by non-U.S. banks in normal times, as their U.S. dollar flows allow U.S. dealers to offset up to 70% of the on-balance sheet exposures associated with providing hedges to non-bank customers.

Talks: IFABS-Oxford (2025), IBEFA-WEAI Summer Meeting (2025), BIS–CEPR-Gerzensee SFI Conference on Financial Intermediation (poster session, 2025), the GPEF PhD Day at the University of St.Gallen (2024), SFI Research Days (2025), the Fourth PhD Workshop in Money and Finance organized by the Sveriges Riks bank and the Center for Monetary Policy and Financial Stability at Stockholm University (2025), the Third Durham Conference for Finance Job Market Papers (2025), the Young Swiss Economists Meeting (poster session, 2025) and the Annual Meeting of the Swiss Society for Financial Market Research (poster session, 2025). This paper is further scheduled to be presented at the 6th Joint Bank of England– Banque de France– IMF– OECD– Banca d’Italia Workshop on International Capital Flows and Financial Policies, at the 31st Annual Meeting of the German Finance Association (DGF) and at the 2025 Federal Reserve Stress Testing Research Conference.

Abstract: We study how financial intermediaries obtain US dollars from wholesale and synthetic funding markets, uncovering three key findings. First, non-US banks substitute funding from US repurchase agreements (repo) with FX swaps at quarter-ends. Second, this behavior arises from regulatory shadow costs which affect repos but not synthetic funding. Third, non-US institutions’ inelastic demand for dollars drives up the cross-currency basis. Eurozone banks predominantly engage in this substitution, with US dealers benefiting while the costs are borne by end customers. Our study highlights how unintended regulatory effects impact interconnected money markets, driving quarter-end surges in synthetic dollar borrowing and no-arbitrage violations.

Talks: University of St.Gallen, 2024 SFI Research Days in Gerzensee, 7th Short-Term Funding Markets Conference at the Federal Reserve Board, 37th Joint Session of the AWG-MPAG at the ESRB, Northeastern University, Bank for International Settlements, ESSEC, 2024 ECB Money Market Conference, 19th Central Bank Conference on the Microstructure of Financial Markets, EPFL Lausanne, Third CEMLA/Dallas Fed/IBEFA Financial Stability Workshop, the 2024 EMMEC Meetings, 14th BIS/Banca d'Italia/ECB/Bank of Slovenia Workshop on Exchange Rates, 2025 Day Ahead Conference on Financial Markets and Institutions, Federal Reserve Bank of New York, Norges Bank, BI Oslo, Bank of England.

Abstract: We present the first comprehensive examination of liquidity in the global foreign exchange (FX) swap market, assessing both its tightness and depth. Three main findings emerge. First, as compared with spot, FX swap liquidity conditions are highly fragmented and more unstable. Second, constrained dealers reduce liquidity supply around quarter-end reporting periods. However, while this would imply a decline in trading activity, we find that volumes surge. A novel demand channel for short-term funding jointly explains volume and liquidity dynamics during these periods. Third, we show a strong and consistent relationship between illiquidity and deviations from the law of one price.

Talks: 2023 SFI Research Days in Gerzensee, IFABS 2023 Oxford, 29th Annual Meeting of the German Finance Association (DGF), 18th Central Bank Conference on the Microstructure of Financial Markets at the Federal Reserve Board, 2024 BEAR Conference on the Prudential Framework, Bank of England, IMF, Morgan Stanley, Queen Mary University of London, University of St.Gallen, University of Zurich .

Abstract: A combination of CLS data with BIS statistics shows banks’ FX swaps positions alongside the currency mismatches on their balance sheets. It sheds light on global dollar flows via FX swaps in key currency pairs and, specifically, on banks’ use of these instruments to hedge exchange rate risk, engage in arbitrage or serve customers. Compared with Japanese and euro area banks, US banks have played an outsize role in FX swap markets by using maturity transformation to intermediate in the interbank market and between banks and non-banks.