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

Author

Listed:
  • 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:

    1. Aikman, David & Haldane, Andrew & Hinterschweiger, Marc & Kapadia, Sujit, 2018. "Rethinking financial stability," Bank of England working papers 712, Bank of England.
    2. de Ramon, Sebastian & Francis, William & Milonas, Kristoffer, 2017. "An overview of the UK banking sector since the Basel Accord: insights from a new regulatory database," Bank of England working papers 652, Bank of England.

    More about this item

    Keywords

    Banking; bank regulation; deposits; funding;

    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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