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Banking Systemic Risk, Foreign Funding, Exchange Rate Exposure and Carry Trade: is there a relation?
Bruno Freitas Boynard de Vasconcelos
and Benjamin Miranda Tabak
October, 2014
365
ISSN 1518-3548 CGC 00.038.166/0001-05
Working Paper Series Brasília n. 365 October 2014 p. 1-36
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Banking Systemic Risk, Foreign Funding, Exchange Rate
Exposure and Carry Trade: is there a relation?*
Bruno Freitas Boynard de Vasconcelos**
Benjamin Miranda Tabak***
Abstract
The Working Papers should not be reported as representing the views of the Banco Central
do Brasil. The views expressed in the papers are those of the author(s) and do not
necessarily reflect those of the Banco Central do Brasil or the Federal Senate.
We study what is the systemic impact of banks' foreign funding and what
are the determinants of this flow of international money. With that, we
intend to establish a relation between banks' foreign funding, carry trade,
exchange rate exposure and banking system risk which is novel in the
literature. We used an unique data for Brazilian banks exchange rate
transactions combined with other micro and macro data. Our results indicate
that banks improve its credit portfolio, free from regulatory investment, in
periods when banks get foreign funding. Those results and future analysis
and extensions of this work may better quantify this effect and serve as a
basis for policy makers in terms of analysis of macroprudential policies.
Keywords:
JEL Classification:
* The authors wish to thanks anonymous reviewers for their suggestions, which have helped improve the
paper. Benjamin M. Tabak gratefully acknowledges financial support from CNPQ Foundation. **
Banco Central do Brasil. ***
Senado Federal Universidade Católica de Brasília.
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Period (Monthly )
Yearly N
orm
ial
Inte
rest
Rate
s (
p.p
.)
Australia
UK
Canada
China
Japan
Russia
South Af rica
Turkey
Brasil
USA
2003 2005 2007 2009 20110
1
2
3
4
5
6
Period (Monthly )
Exchange R
ate
Coefic
ient
of
Variation (
p.p
.)
9
2003 2005 2007 2009 2011100
105
110
115
Period (Quarterly)
Cu
mu
lativ
e In
de
x
National Private
Foreign
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