A Map of Funding Durability and Risk

28 Pages Posted: 3 Aug 2014

See all articles by Andrea Aguiar

Andrea Aguiar

Morgan Stanley

Richard M. Bookstaber

Board of Regents - University of California Office of the CIO

Thomas Wipf

Morgan Stanley

Date Written: May 29, 2014

Abstract

The dynamics of the financial system and the undercurrents of its vulnerabilities rest on the flow of funding. Analysts typically represent these dynamics as a network with banks and financial entities as the nodes and the funding links as the edges. This paper focuses instead on the funding operations within the nodes, in particular those within Bank/Dealers, adding a critical level of detail about potential funding risks. We present a funding map to illustrate the primary business activities and funding sources of a typical Bank/Dealer. We use that map to trace the paths of risk through four specific financial institutions during historical crises and to identify gaps in data needed for financial stability monitoring. We also introduce the concept of "funding durability," defined as the effective term of funding in the face of signaling and reputational considerations during periods of stress. Using these tools, the paper highlights the points of potential durability mismatch and resulting funding risks within the Bank/Dealer. It also provides insight into how funding weaknesses can pass from one institution to another and ultimately affect financial stability.

Keywords: repo, funding

Suggested Citation

Aguiar, Andrea and Bookstaber, Richard M. and Wipf, Thomas, A Map of Funding Durability and Risk (May 29, 2014). Available at SSRN: https://ssrn.com/abstract=2475041 or http://dx.doi.org/10.2139/ssrn.2475041

Andrea Aguiar

Morgan Stanley ( email )

1585 Broadway
New York, NY 10036
United States

Richard M. Bookstaber (Contact Author)

Board of Regents - University of California Office of the CIO ( email )

1111 Broadway
Oakland, CA 94607
United States

Thomas Wipf

Morgan Stanley ( email )

Montréal
Canada

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