Studies of intermediated arbitrage argue that bank balance sheets are an important consideration yet little evidence exists on banks positioning in this context. Using confidential supervisory data—covering $25 trillion in daily notional exposures—we examine banks positions in connection with covered-interest parity (CIP) deviations. Exploiting cross-sectional variation in CIP deviations that has largely presented a puzzle to existing theories we document the importance of three novel forces: 1) foreign safe asset scarcity 2) market power and segmentation of banks specializing in different markets and 3) concentration of demand. Our findings shed empirical light on the interplay of frictions influencing banks global provision of dollar funding.