Leverage actually: the impact on banks’ borrowing costs in euro area money markets

This paper explores the impact of the regulatory leverage ratio (LR) on banks’ demand for reserves and thus the pricing of overnight liquidity in the euro area money markets. We use daily transaction-level money market data during the period between January 2017 - February 2023 and examine the two major overnight money market segments – the unsecured and the secured one, distinguishing between over-the-counter (OTC) and CCP-cleared trades for the latter. We find a significant positive link between a bank’s LR and the spread between its money market borrowing rate and the DFR.

The implications of CIP deviations for international capital flows

We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors’ holdings of USD bonds decrease following a widening in the USD-EUR cross-currency basis (CCB). This effect is driven by investors with larger FX rollover risk and hedging mandates, and it is robust to instrumenting the CCB. These shifts in bond demand significantly affect bond prices.

Leverage actually: the impact on banks’ borrowing costs in euro area money markets

This paper explores the impact of the regulatory leverage ratio (LR) on banks’ demand for reserves and thus the pricing of overnight liquidity in the euro area money markets. We use daily transaction-level money market data during the period between January 2017 - February 2023 and examine the two major overnight money market segments – the unsecured and the secured one, distinguishing between over-the-counter (OTC) and CCP-cleared trades for the latter. We find a significant positive link between a bank’s LR and the spread between its money market borrowing rate and the DFR.

The implications of CIP deviations for international capital flows

We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors’ holdings of USD bonds decrease following a widening in the USD-EUR cross-currency basis (CCB). This effect is driven by investors with larger FX rollover risk and hedging mandates, and it is robust to instrumenting the CCB. These shifts in bond demand significantly affect bond prices.

Appelbaum and Batt Cite Their INET-Funded Research in the Boston Globe

Boston Globe
“But a first-of-its-kind Massachusetts law that Governor Maura Healey signed this month will rein in private equity greed in health care, offer hope that the state can avoid similar future crises, and serve as a model for other states to build on.
The new law effectively bans deals like the one Steward made with MPT, a real estate investment trust.

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