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Do we need a stable funding ratio? Banks’ funding in the global financial crisis

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  • Lallour, Antoine

    () (Bank of England)

  • Mio, Hitoshi

    (Bank of Japan)

Abstract

We use data from the recent global financial crisis to study the importance of several structural funding metrics in characterising banks’ resilience. We find that structural funding ratios, including the Basel Committee’s Net Stable Funding Ratio (NSFR) which will soon become a new requirement, would have helped detect, back in 2006, which banks were to subsequently fail, even controlling for the banks’ solvency ratios. Their predictive power seems to come from the liability side and in particular from the fact that they count retail deposits as a highly stable funding source. Indeed, a deposits-to-assets ratio would outperform the other structural metrics we investigated as failure predictors for this crisis. Our findings suggest that this crisis was a crisis of banks’ funding structures.

Suggested Citation

  • Lallour, Antoine & Mio, Hitoshi, 2016. "Do we need a stable funding ratio? Banks’ funding in the global financial crisis," Bank of England working papers 602, Bank of England.
  • Handle: RePEc:boe:boeewp:0602
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    References listed on IDEAS

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    Cited by:

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    2. David Aikman & Jonathan Bridges & Anil Kashyap & Caspar Siegert, 2019. "Would Macroprudential Regulation Have Prevented the Last Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 33(1), pages 107-130, Winter.
    3. David Grossmann & Peter Scholz, 2019. "The golden rule of banking: funding cost risks of bank business models," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(2), pages 174-196, June.
    4. Spatareanu, Mariana & Manole, Vlad & Kabiri, Ali, 2019. "Do bank liquidity shocks hamper firms’ innovation?," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    5. Neyer, Ulrike & Sterzel, André, 2018. "Preferential treatment of government bonds in liquidity regulation: Implications for bank behaviour and financial stability," DICE Discussion Papers 301, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Carlson, Mark & Rose, Jonathan, 2019. "The incentives of large sophisticated creditors to run on a too big to fail financial institution," Journal of Financial Stability, Elsevier, vol. 41(C), pages 91-104.
    7. Gomez, Fabiana & Vo, Quynh-Anh, 2020. "Liquidity management, fire sale and liquidity crises in banking: the role of leverage," Bank of England working papers 894, Bank of England.
    8. Bonner, Clemens & Wedow, Michael & Budnik, Katarzyna & Koban, Anne & Kok, Christoffer & Laliotis, Dimitrios & Meller, Barbara & Melo, Ana Sofia & Moldovan, Iulia & Schmitz, Stefan & Couaillier, Cyril , 2018. "Systemic liquidity concept, measurement and macroprudential instruments," Occasional Paper Series 214, European Central Bank.
    9. Aikman, David & Haldane, Andrew & Hinterschweiger, Marc & Kapadia, Sujit, 2018. "Rethinking financial stability," Bank of England working papers 712, Bank of England.
    10. Buckmann, Marcus & Gallego Marquez, Paula & Gimpelewicz, Mariana & Kapadia, Sujit & Rismanchi, Katie, 2021. "The more the merrier? Evidence from the global financial crisis on the value of multiple requirements in bank regulation," Bank of England working papers 905, Bank of England.

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    More about this item

    Keywords

    Banking; bank regulation; deposits; funding;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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