European Parliament Library

The Dark Side of Bank Wholesale Funding, Lev Ratnovski, Rocco Huang

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
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. The Bright Side of Wholesale Funding; A. Model; B. Retail Depositis Only; C. Wholesale Funds: Welfare Maximization; D. Wholesle Funds: Private Equilibrium; III. The Dark Side of Wholesale Funding; A. Welfare Maximization; B. Incentives of the Wholesale Financier; Figures; C. Incentives of the Bank; IV. Discussion; V. Conclusion; Proofs; References; Footnotes
Literary Form
non fiction
"July 2010."
Physical Description
1 online resource (49 p.)
Specific Material Designation
Form Of Item

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