Staff Working Paper No. 602: Do we need a stable funding ratio? Banks’ funding in the global financial crisis – Antoine Lallour and Hitoshi Mio
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.
The full paper is available here: http://www.bankofengland.co.uk/research/Documents/workingpapers/2016/swp602.pdf