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Dollar Funding Costs During the Covid-19 Crisis Through the Lens of the FX Swap Market (BIS, 6-page read) Dollar funding cost in the FX market has increased during Covid-19. Reasons are twofold: increasing demand (hedging needs of firms and asset managers to pay back dollar-denominated obligations); and reduction in supply (financial intermediaries find it risky to lend). However, the cost has narrowed after central banks set up swap lines.
Optimal Bailouts and the Doom Loop with a Financial Network (NBER, 31-page read) Joseph Stiglitz, Agostino Capponi and Felix C. Corell examine interbank network structures and banks’ exposure to domestic government debt. They find that rescuing banks is an optimal strategy if they have sizeable sovereign exposure and are vital within the network even if this requires a larger bailout package.