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

By F. J. Vázquez, P. Federico. Social Science Research Network, 2012

385 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/40c995a69ea2db2014d92ca381f61160903bf770

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Citations in the corpus

Capital and liquidity ratios and financial distress. Evidence from the European banking industry (2017, background): “Vazquez and Federico (2015) also find evidence of systematic differences across bank types.”
Bank risk and performance in the MENA region: The importance of capital requirements (2016, neutral): “Consequently, the quality of assets and offbalance sheet risk exposure will be integrated into the bank capital requirement, thereby strengthening the stability of the banking system (Barrios and Blanco, 2003; Vazquez and Federico, 2015).”
Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses (2021, positive): “According to Vazquez and Federico (2015), banks with less structural liquidity and more leverage before the 2008 financial crisis were more inclined to fail afterward.”
Do financial technology firms influence bank performance? (2020, background): “Several studies (see Berger and Bouwman, 2013; Matousek et al., 2015; Vazquez and Federico, 2015; Olson and Zoubi, 2017) show that the GFC impacted the banking sector.”
Balance Sheet Strength and Bank Lending During the Global Financial Crisis (2013, positive): “We compute instead an approximate NSFR using the weights proposed in Vazquez and Federico (2012) and a stylized balance sheet based on Bankscope variables with maximum coverage (see Figure 5).”