Do We Need a Stable Funding Ratio? Banks’ Funding in the Global Financial Crisis

34 Pages Posted: 24 May 2016

Date Written: May 20, 2016

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.

Keywords: Banking, bank regulation, deposits, funding

JEL Classification: G21, G18, G01

Suggested Citation

Lallour, Antoine and Mio, Hitoshi, Do We Need a Stable Funding Ratio? Banks’ Funding in the Global Financial Crisis (May 20, 2016). Bank of England Working Paper No. 602, Available at SSRN: https://ssrn.com/abstract=2783788 or http://dx.doi.org/10.2139/ssrn.2783788

Antoine Lallour (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Hitoshi Mio

Bank of Japan ( email )

CPO Box 203
Tokyo, 100-91
Japan

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