Wholesale funding and bank stability: The impact of economic policy uncertainty

Thanh Cong Nguyen

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: The primary aim of this paper is to examine the conditioning effects of economic policy uncertainty on the relationship between wholesale funding and bank stability. Based on a sample of 1829 commercial banks in 27 countries over the period 2005–2020, we provide evidence of a nonlinear relationship between wholesale funding and bank stability. Specifically, a small share of nondeposit funding to total deposit and short-term funding (below 22.3%) offers some risk reduction, but a substantial mixing of nondeposit and deposit funding increases bank fragility. Moreover, the adverse effects of excessive wholesale funding on bank stability are strengthened during periods of high policy uncertainty. Nevertheless, banks in advanced countries, large banks, and high-quality banks with better asset quality are less affected by the detrimental impact of excessive wholesale funding on bank stability when during periods of increased policy uncertainty.

Keywords: Economic policy uncertainty; Bank stability; Wholesale funding (search for similar items in EconPapers)
JEL-codes: D81 E44 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923001162

DOI: 10.1016/j.ribaf.2023.101990

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