Bank Funding Costs for International Banks

April 30, 2014

Preview Citation

Format: Chicago

Rita Babihuga, and Marco Spaltro. Bank Funding Costs for International Banks, (USA: International Monetary Fund, 2014) accessed November 21, 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 investigates the determinants of bank funding costs for a sample of internationally active banks from 2001–12. We find that changes in banks’ unsecured funding costs are associated with bank-specific characteristics such as an institution’s credit worthiness and the return on its market value, and importantly, on the level and quality of capital. Similarly, market factors such as the level of investor risk appetite, as well as shocks to financial markets—notably the US subprime crisis and the Euro Area sovereign debt crisis—have also been key drivers of the sharp rise in bank funding costs. We also find evidence that large systemically important institutions have enjoyed a funding advantage, and that this advantage has risen since the onset of the two crises. With the exception of Euro Area periphery banks, by end-2012 the rise in funding costs had generally been reversed for most major banks as a result of improvments in bank asset quality as well as steps taken to increase resilience, notably higher capitalization. Our results suggest increased capital buffers may potentially support bank lending to the real economy by reducing bank funding costs.

Subject: Bank credit, Banking, Credit default swap, Financial crises, Financial services, Global financial crisis of 2008-2009, Money, Short term interest rates

Keywords: Balance sheet determinant, Balance sheet health, Bank capital, Bank credit, Bank equity financing, Bank funding, Bank lending, Bank profitability, Capital, CDS premia, Credit default swap, Deposit, EA bank, EA bank CDS premia, EA periphery bank, Financial crises, Funding cost, Funding model, Global, Global financial crisis of 2008-2009, Periphery bank, Result bank, Short term interest rates, Wholesale funding, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/071
Stock No:

WPIEA2014071
ISBN:

9781475517910
ISSN:

1018-5941

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