EconPapers    
Economics at your fingertips  
 

The Dark Side of Bank Wholesale Funding

Lev Ratnovski () and Rocco Huang

No 10/170, IMF Working Papers from International Monetary Fund

Abstract: Banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the "bright side" of wholesale funding: sophisticated financiers can monitor banks, disciplining bad but refinancing good ones. This paper models a "dark side" of wholesale funding. In an environment with a costless but noisy public signal on bank project quality, short-term wholesale financiers have lower incentives to conduct costly monitoring, and instead may withdraw based on negative public signals, triggering inefficient liquidations. Comparative statics suggest that such distortions of incentives are smaller when public signals are less relevant and project liquidation costs are higher, e.g., when banks hold mostly relationship-based small business loans.

Keywords: Banks; Economic models; External financing; wholesale funding, interest rate, reserve bank, financial stability, individual bank (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-cta
Date: 2010-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20) Track citations by RSS feed

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=24061 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Journal Article: The dark side of bank wholesale funding (2011) Downloads
Working Paper: The dark side of bank wholesale funding (2010) Downloads
Working Paper: The dark side of bank wholesale funding (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:10/170

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Jim Beardow ().

 
Page updated 2020-01-17
Handle: RePEc:imf:imfwpa:10/170