Is there a Role for Funding in Explaining Recent U.S. Banks' Failures?

Abstract

This paper tests the role of different banks' liquidity funding structures in explaining thebanks' failures, which occurred in the United States between 2007 and 2009. The resultshighlight that funding is indeed a significant factor in explaining banks' probability ofdefault. By confirming the role of funding as the driver of banking crisis, the paper alsorecognizes that the new liquidity framework proposed by the Basel Committee onBanking Supervision appears to have the features to strenghten banks' liquidity conditionsand improve financial stability. Its correct implementation together with closersupervision of banks' liquidity and funding conditions appear, however, the determinantfor such improvements to be achieved.