Capital Account Liberalization and the Composition of Bank Liabilities

Using a sample of almost 600 banks in Latin America, we show that capital account liberalization lowers the share of equity and raises the share of interbank funding in total liabilities of the consolidated banking system. These shifts are mostly due to large banks; smaller banks, instead, increase their resort to retail funding by offering higher average de- posit interest rates than larger banks. We also find significant differences in the behavior of foreign banks and of banks with seemingly greater information opacity. These findings have positive implications for macro-prudential regulation.