Wholesale Funding Research Articles

Accredited investor tests: How to balance, access, entrepreneurial funding, and investor protection?

AbstractRegulators seek to balance investor protection with the costs of that protection. This often leads to a distinction between “accredited” and “retail” investors. Only “accredited” investors can invest in certain “risky” or “illiquid” assets, including start‐ups and wholesale funds. But what should be the “bar” to be classified as “accredited”? Should people be able to qualify via income, wealth, or education? Should they be able to self‐certify? Thus, this article considers the situation in the US, UK, and Australia and argues in favour of letting people qualify via wealth, income, and education and being able to self‐certify.

Bank wholesale funding in an era of rising geopolitical risk

AbstractThis paper examines the impact of geopolitical risk on bank wholesale funding using a sample of 2333 commercial banks in 41 countries over the period 2002–2021. Evidence suggests that increased geopolitical risk reduces the share of bank wholesale funding. Interestingly, our finding is driven by small and medium‐sized banks, as large banks do not lose funding from wholesale financiers when geopolitical risk is higher. Delving into the mechanisms that drive our findings, we find that wholesale financiers rely on noisy public signals on bank asset quality such as insolvency risk, earnings volatility and bad debts to determine whether to refinance or withdraw their financing. Small banks lose funding from both informed and uninformed wholesale financiers as their asset quality is adversely affected when geopolitical risk is elevated. Large banks with better asset quality are not significantly affected by geopolitical risk and benefit from the flight‐to‐safety motive.

PENGARUH OPASITAS BANK TERHADAP TINGKAT PERTUMBUHAN KREDIT DI MODERASI OLEH VARIABEL KAPITALISASI BANK, WHOLESALE FUNDING, MACROECONOMY CONDITION, DAN KUALITAS KREDIT (Studi Empiris pada Bank Umum Konvensional yang terdaftar di BEI 2018-2022)

This study aims to investigate the effect of bank opacity on loan growth rates by considering the role of bank capitalization variables, wholesale funding, macroeconomic conditions, and credit quality as moderating factors. The empirical study was conducted on Conventional Commercial Banks listed on the Indonesia Stock Exchange (IDX) during the period 2018-2022. The research method uses multiple regression analysis and moderation techniques by utilizing financial and macroeconomic data sourced from bank financial reports in Indonesia. The results of this analysis can provide insight into the impact of bank opacity on loan growth, while explaining the extent to which the variables of bank capitalization, wholesale funding, macroeconomic conditions, and credit quality moderate the relationship. The findings of this study are expected to contribute to the understanding of the factors that influence credit growth in the banking sector, particularly in the context of bank opacity. The practical implications of this study can help regulators, bank management, and other stakeholders to develop appropriate policies to improve the stability and growth of the banking sector. Keywords: bank opacity, loan growth, bank capitalization, wholesale funding, macroeconomic conditions, credit quality.

Asymmetric Information and Information Assimiliation

The purpose of this research is to determine the impact of information assimilation on equity issuance in the banking sector. The data consists of 384 observations of banking and finance companies listed on the Indonesian Stock Exchange from 2020 to 2023. A univariate analysis was utilized to identify the differences in asymmetry between companies with seasoned equity offerings (SEOs) and non-SEOs to meet capital requirements in the banking sector. The research indicates that SEO and non-SEO banks exhibit significant differences in their spreads. Despite the banking sector's access to deposits and wholesale funding to finance capital shortages or prospective projects, equity issuance by the banking sector has increased. The presence of regulations on information disclosure does not produce asymmetric information; however, the increased spread among companies with SEOs is due to the more complex information assimilation process, which in turn results in a wider spread relative to the fundamental price.

Shadow banking and loan pricing of commercial banks: Evidence from China

We examine the role of regulatory arbitrage via wealth management products (WMPs) in the determination of lending rates in China. We find WMP yields are positively associated with lending rates whereas the effect of WMP scale varies across bank size. For the big-5 state-owned banks, the negative “transfer-effect” of high-risk high-yield loans into shadow bank credit dominates the positive “funding-cost-effect” of banks becoming more dependent on wholesale funding. For smaller banks, the positive funding-cost effect dominates. Our study provides insights into the role of regulatory arbitrage on asset structure and profit margins in the interest of banks and the regulators.

Business Models of Ukrainian Banks: the Impact of the Revolution of Dignity, the COVID–19 Pandemic, and Russia’s Military Aggression

The purpose of the article is to identify key banking activity models in Ukraine and show how they changed under the influence of the Revolution of Dignity, the COVID–19 pandemic, and the imposition of martial law. The proposed method uses cluster analysis of the main indicators for banking activity (concerning assets, liabilities and income) based on Ward’s agglomerative hierarchical clustering algorithm and the Tau index in the NbClust package as the criterion for evaluating the optimal number of clusters. The research covers all Ukrainian banks, spanning the period 2013–2022. In 2014 (after the Revolution of Dignity), the actions of the National Bank of Ukraine (NBU) had a positive impact on the models of Ukrainian banks: there was no opaque model of banks and banking models became more transparent and more resilient to financial shocks. Between 2021 and 2022, five banking models were identified: universal banks, wholesale funding banks, corporate‑investment banks, retail banks, and commission banks. The negative impact of COVID–19 on the Ukrainian economy was reflected in all banking models by the following: (1) a significant increase in the role of securities in assets, which was caused by a decrease in lending due to an increase in their riskiness; (2) the use of central bank funds to liabilities management, which was evidence of a deterioration in financing conditions in the deposit market. The following main changes in Ukraine’s banking system at the end of 2022 (during the war) were identified: (1) a decrease in the number of banks that mainly use funds from the NBU to support their activities; (2) the closure of only four banks by the NBU (including two with majority shareholders from Russia) during the year; (3) an increase in the share of the non‑government debt securities portfolio in banks’ assets; (4) declines in ROE and ROA for all banking models during the war, and three banking models became unprofitable; (5) the significantly higher share of non‑performing loans in the credit portfolio for all banking models, especially for the retail banking model. The value‑added of this research is the analysis of how banking models in Ukraine have changed at the micro level (reflected in the financial statements) inter alia in wartime.

Bank Funding Dynamics Between Retail Deposits and Wholesale Funds: Implications for Regulations

Bank Funding Dynamics Between Retail Deposits and Wholesale Funds: Implications for Regulations

Shadow loans and regulatory arbitrage: Evidence from China

This paper examines how Chinese banks used on-balance sheet shadow loans for regulatory arbitrage and whether the financial market priced in the banks’ use of shadow loans and the resulting vulnerabilities in 2014–2022. It finds that banks chose to window dress their regulatory capital ratio by using shadow loans when their capital adequacy ratio was close to the regulatory minimum. It also shows that banks with a higher shadow loan ratio or a lower breakeven non-performing loan ratio obtained from reverse stress testing faced higher wholesale funding costs. Finally, after the announcement of a rare bank failure event, more vulnerable banks witnessed lower cumulative stock and bond returns.

Bank Runs and Interventions with Wholesale Funding

Bank Runs and Interventions with Wholesale Funding

The Effects of CBDC on the Federal Reserve's Balance Sheet

We propose a parsimonious framework to understand how the issuance of central bank digital currency (CBDC) might affect the financial system, the Federal Reserve's balance sheet, and the implementation of monetary policy. We show that there is a wide range of outcomes on the financial system and the Federal Reserve's balance sheet that could reasonably occur following CBDC issuance. Our analysis highlights that the potential effects on the financial sector depend critically on how the Fed manages its balance sheet. In particular, CBDC could in principle put substantial upward pressure on the spread of the federal funds rate and other wholesale funding rates over the interest rate on reserves unless the Fed expanded its balance sheet to accommodate CBDC issuance.

Applications of Waqf-Featured Fund in the Malaysian Islamic Fund Management Industry: A Comparative Study

Historical evidence demonstrates the enormous role waqf institutions have played in the development and advancement of Muslims throughout the Muslim history. With the proper structure and strategy, waqf contributes to numerous spheres of life, including mainstream economic development. Contemporary development of Islamic finance has enabled the waqf concept to be linked to various financial products, including Shariah-compliant investment instruments, such as, Islamic unit trust funds and Islamic wholesale funds. This paper aims to highlight the current applications of the Waqf-Featured Fund (WFF) in the Malaysia Islamic Fund Management Industry. This is in relation to the launch of a new WFF framework to facilitate the offering of Islamic funds with waqf characteristics. The study took both qualitative via in-depth semi-structured interviews with eleven (11) WFF stakeholders, as well as, analyzing of policy documents, journal articles, books, and online resources. The findings shed light on the current issues and challenges confronting waqf projects in Malaysia, as well as the current guidelines and essential requirements for the WFF, the current application of the WFF in the Malaysian Islamic Fund Management (IFM) industry, and a proposal for the future application model, which includes fund collection, investment structure, distribution process, and fund reporting.

Market power in wholesale funding: A structural perspective from the triparty repo market

I model and structurally estimate the equilibrium rates and volume in the Triparty repo market to study imperfect competition in wholesale funding. Even in this systemically important market, where seemingly homogeneous repos trade, I document persistent rate differences paid by dealers. I characterize the Triparty market as cash-lenders allocating their portfolios among differentiated dealers who set repo rates. I find that cash-lenders’ aversion to portfolio concentration and preference for stable lending grant dealers substantial market power: between 2011 and 2017, dealers borrowed at rates that were 26 bps lower than their marginal value from intermediating the borrowed repo funds. Dealers’ market power makes the observed wholesale repo rate understate the financing rate available to market participants who rely on repo funding, and offers a novel explanation for funding spreads such as the Treasury cash-futures basis and the Treasury swap spread.

An Analysis of the Performance of Banks: A Comparative Study of Domestic and Foreign Banks in Zambia

Foreign-owned banks in Zambia have a commanding share of the industry’s profitability, averaging 82.6% between 2016 and 2018, leaving only 17.4% of the industry’s profits for the local banks and thereby resulting in huge externalisation of the financial sector’s profits.The study aimed to provide a comparative analysis of foreign and domestic banks’ profitability in Zambia with regards to the debt component of their capital structure and the impact of leverage on the performance of banks in Zambia over a ten year period. The study used a sample of 10 Commercial banks in Zambia and used a descriptive research methodology and a mixed research approach. The annual reports and financial statements of ten different banks were reviewed to extract secondary data between 2010 and 2020. The study found that there is a statistically stark difference in the capital structures of foreign and local commercial banks, with foreign-owned banks being more adequately capitalized and relying less on wholesale funding (leverage) as compared to local banks. The study further found that leverage has a substantial impact on a bank’s financial performance.

Shocked by Bank Funding Shocks: Evidence from Consumer Credit Cards

Abstract Using the near universe of U.S. consumer credit cards, we show that banks transmit their wholesale funding shocks to consumers by reducing their credit card limits. Credit-constrained consumers who are unable to hedge against the transmitted shock by accessing other credit cards experience a stronger and more persistent reduction in aggregate credit card limits at the consumer level. Consequently, these credit-constrained consumers reduce their aggregate credit card borrowing. Our results document a credit card lending channel for the transmission of adverse bank shocks and show who bears the costs of fragile bank funding structures. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

What makes the difference? Microfinance versus commercial banks

We make a comparison of microfinance banks (MBs) and commercial banks (CBs) in terms of efficiency, business orientation, stability, and asset quality by analyzing a large sample of banks from 60 countries around the world. Our findings indicate that microfinance banks have higher intermediation, non-interest income, wholesale funding and liquidity, but lower efficiency and asset quality. These significant variations are influenced by smaller microfinance banks and are driven mostly to African and Latin American microfinance banks.

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

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.

The Macroeconomic Effects of Shadow Banking Panics

Abstract We study the interaction between occasionally binding financial constraints in the traditional (retail) banking sector and banking panics in the shadow banking sector. Shadow banking panics occur when retail banks choose not to roll over their lending to shadow banks. Occasionally binding financial constraints of retail banks increase the likelihood of and amplify boom-bust dynamics around such shadow banking panics. The model can quantitatively match the dynamics of macroeconomic and financial variables around the US financial crisis. We quantify the impact of wholesale funding market interventions akin to those implemented by the Federal Reserve in 2008, finding that they reduced the fall in output by about half a percentage point. The timing of this intervention matters: an intervention before the banking panic would have been more effective and might even have avoided the panic.

Dynamic blockchain adoption for freshness-keeping in the fresh agricultural product supply chain

During COVID-19, the explosive growth of demand for fresh agricultural products on E-commerce platform has increased the difficulty of maintaining the greenness and freshness in delivery. The traditional cold chain delivery is effective in keeping greenness, but its information asymmetry makes the freshness-keeping activities unable to be regulated, which may lead to the supply chain members giving up their freshness-keeping efforts. Can the blockchain technology effectively solve these problems? We consider a fresh agricultural product supply chain consisting of a supplier and an E-commerce platform (retailer). The retailer is responsible for the wholesale and sales of fresh agricultural products, and determines the blockchain adoption degree and advertising effort. The supplier is responsible for delivering fresh agricultural products to consumers, and determines the greenness investment and freshness-keeping effort. Based on the traditional and blockchain-based fresh agricultural product supply chain, we discuss the dynamic optimization of freshness-keeping effort, advertising effort, and blockchain adoption degree. Results show that the supplier will give up the freshness-keeping effort after receiving the wholesale funds in the traditional fresh agricultural product supply chain, which will naturally worsen the fresh agricultural products. When adopting blockchain technology, the supplier continues to make the freshness-keeping effort in delivery. And five specific settings are proved that blockchain is effective in maintaining freshness. But two other specific settings are determined that it is not suited for adopting blockchain. In addition, compared with the traditional fresh agricultural product supply chain, blockchain adoption can effectively reduce the freshness-keeping effort, advertising investment and goodwill for achieving the same profit margin level, and will not affect the greenness investment decision of the supplier. Our research can provide some insights into the cold chain logistics management of fresh blockchain.

Determinants of U.S. commercial bank demand for short-term wholesale funds

Determinants of U.S. commercial bank demand for short-term wholesale funds

Determinants of US commercial bank demand for short-term wholesale funds

Determinants of US commercial bank demand for short-term wholesale funds