Structural Funding and Bank Failures Does Basel 3 Net Stable Funding Ratio Target the Right Problem?

Posted: 24 Jun 2018

Date Written: 2015

Abstract

This paper investigates bank structural funding vis-à-vis bank failures. An empirical analysis is conducted on the defaults of commercial banks occurred in the United States between 2007 and 2009. The results highlight that structural funding position indeed plays a significant role in explaining the probability of bank defaults. A balanced funding position, with more deposits and a lower loans-deposits gap to be filled with wholesale funding, positively contributes to the resilience of the banks. Not all deposits are, however, the same: within deposit funding, the higher the reliance on the less-stable components the more likely a bank is to face distress. Results are robust to the sampling and modelling choices as well as to the variable specification used. While the empirical analysis focuses on the US and the loan-to-deposit ratio, the findings can be easily generalized to any banking system, and the relevant policy messages can be extended to the banking stability impacts of the Basel III structural funding regulation.

Keywords: Bank, Crisis, Liquidity, Funding, Financial stability, Basel 3, Regulation, Deposit insurance, United States

JEL Classification: G01, G20, G21, G28

Suggested Citation

Bologna, Pierluigi, Structural Funding and Bank Failures Does Basel 3 Net Stable Funding Ratio Target the Right Problem? (2015). Journal of Financial Services Research, Vol. 47, No. 1, 2015. Available at SSRN: https://ssrn.com/abstract=3192806

Pierluigi Bologna (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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