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The Determinants of Short Term Funding in Luxembourgish Banks

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  • Dirk Mevis

Abstract

This paper attempts to empirically identify the determinants of Luxembourgish banks? reliance on short term funding. The emphasis lies on making the link to developments in the macroeconomic environment and the build up of systemic risk while institution-specific factors are being controlled for. The paper provides evidence for a close link between exuberant credit developments at the aggregate level and short term funding of banks. This finding supports the view that one possible channel for increasing vulnerabilities during a lending boom may run through increased reliance of banks on short term funding. When it comes to bank specific variables, bank size has an important effect on the tendency to contract short term funding. This result is in line with recent work on leverage procyclicality in the banking sector. The results also imply that currently discussed regulatory standards on the funding structure of banks could mitigate the build up of vulnerabilities.

Suggested Citation

  • Dirk Mevis, 2012. "The Determinants of Short Term Funding in Luxembourgish Banks," BCL working papers 80, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp080
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    References listed on IDEAS

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    More about this item

    Keywords

    Banks; short term funding; procyclicality;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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