The Determinants of Short Term Funding in Luxembourgish Banks

Dirk Mevis

No 80, BCL working papers from Central Bank of Luxembourg

Abstract: This paper attempts to empirically identify the determinants of Luxembourgish banks? reliance on short term funding. The emphasis lies on making the link to developments in the macroeconomic environment and the build up of systemic risk while institution-specific factors are being controlled for. The paper provides evidence for a close link between exuberant credit developments at the aggregate level and short term funding of banks. This finding supports the view that one possible channel for increasing vulnerabilities during a lending boom may run through increased reliance of banks on short term funding. When it comes to bank specific variables, bank size has an important effect on the tendency to contract short term funding. This result is in line with recent work on leverage procyclicality in the banking sector. The results also imply that currently discussed regulatory standards on the funding structure of banks could mitigate the build up of vulnerabilities.

Keywords: Banks; short term funding; procyclicality (search for similar items in EconPapers)
JEL-codes: C23 C26 G21 G28 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-10
New Economics Papers: this item is included in nep-ban
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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp080

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