Bank for International Settlements links non-US global banks’ US dollar funding exposure to international house price synchronisation

The Bank for International Settlements published a working paper analysing how US dollar funding conditions transmitted through non-US global banks help explain why house prices and mortgage credit co-move across countries. The paper finds that when the US dollar appreciates, mortgage lending and house prices fall more in borrowing countries whose non-US creditor banking systems are more exposed to dollar funding conditions, and that country pairs with higher joint exposure exhibit greater synchronisation in mortgage credit and house price growth. Exposure is proxied by the bilateral US Treasury basis between the creditor banks’ home currency and the US dollar, combined with market-share weights derived from BIS consolidated banking statistics to construct a borrowing-country “dollar dependence” measure and a country-pair “dollar co-dependence” metric. Empirical results over a 2000–2019 quarterly sample indicate economically meaningful effects (including larger house price declines after a US dollar appreciation for more dollar-dependent economies) and show that dollar co-dependence is a significant driver of cross-country house price and mortgage credit synchronisation, while common-lender concentration measures are not. The paper also reports instrumental-variable estimates designed to mitigate reverse-causality concerns and robustness checks across alternative synchronisation measures and Treasury-basis maturities.