Bank Funding Structures and Risk: Evidence From the Global Financial Crisis

January 1, 2012

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Pablo Federico, and Francisco F. Vazquez Bank Funding Structures and Risk: Evidence From the Global Financial Crisis, (USA: International Monetary Fund, 2012) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the evolution of bank funding structures in the run up to the global financial crisis and studies the implications for financial stability, exploiting a bank-level dataset that covers about 11,000 banks in the U.S. and Europe during 2001?09. The results show that banks with weaker structural liquidity and higher leverage in the pre-crisis period were more likely to fail afterward. The likelihood of bank failure also increases with bank risk-taking. In the cross-section, the smaller domestically-oriented banks were relatively more vulnerable to liquidity risk, while the large cross-border banks were more susceptible to solvency risk due to excessive leverage. The results support the proposed Basel III regulations on structural liquidity and leverage, but suggest that emphasis should be placed on the latter, particularly for the systemically-important institutions. Macroeconomic and monetary conditions are also shown to be related with the likelihood of bank failure, providing a case for the introduction of a macro-prudential approach to banking regulation.

Subject: Asset and liability management, Banking, Distressed institutions, Financial crises, Financial institutions, Financial regulation and supervision, Liquidity, Liquidity requirements, Stocks

Keywords: Bank, Bank dynamics, Bank probability, Bank survival probability, Bank type, Capital ratio, Distressed institutions, Global, Global bank, Liquidity, Liquidity requirements, Risk profile, Stocks, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/029
Stock No:

WPIEA2012029
ISBN:

9781463933142
ISSN:

1018-5941

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