From Zoltan Poszar at Credit Suisse:
Since the global adoption of Basel III in 2015, dollar funding markets were rattled by two events: money fund reform in 2016 and tax reform in 2018. Banks have weathered the storm of 2016 and will weather the storm of 2018, thanks to their robust liquidity buffers. While Libor-OIS spreads look scary, they are not systemic. Spreads have widened not because cash investors don’t want to fund banks, but because external forces are changing their habitats.
During money fund reform, $800 billion went from prime to government funds. Foreign banks lost their access to CD and CP markets which they quickly replaced via FX swaps, pressuring cross-currency bases wider. Pressures on bases persisted until the three-month FX swap-implied cost of dollar funding got flat relative to 1-3 year funding, at which point banks started to term out. Term issuance relieved pressure on cross-currency bases and the CD market.