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I am grateful for research assistance from S. Avramova, I. Guerra, M. Ismael and A. Watson. The paper also benefited from comments from IMF colleagues and discussions with market participants and public sector officials. Any remaining errors in the paper are my own.
Based on a sample of 16 European and 14 U.S.banks. In Europe, where over 8,000 banks operate, a broader sample including smaller deposit-rich retail banks would likely reduce the funding gap. Our sample still allows cross-Atlantic comparisons and captures the existence of a surplus in the United States and a deficit in Europe.
Levels of short-term funding change quickly, and more recent trends may not be fully reflected.
Grossman 2012. It should be noted that many European banks responded to the shortage in US dollar funding by disposing of US dollar assets and are thus much less reliant on this funding source.
FSR, December 2011.
It refers to the pledging of collateral to one group of creditors at the expense of another, which reduces the available collateral to unsecured creditors in insolvency and reduces their rate of recovery (or increases their loss given default, “LGD”). Encumbrance encompasses instruments such as covered bonds and repurchase agreements (repos), collateral swaps and securitized funding, or any instruments where collateral must be granted in exchange of funding, as in ECB operations.
Including in the United Kingdom, Ireland, and Spain.
Bail-in is defined as is a statutory power of a resolution authority to restructure the liabilities of a distressed financial institution by writing down certain bank liabilities and/or converting them to equity.
European global SIFIs may also be impacted by measures in the Vickers and/or Volcker proposals.
In an insolvency, recovery rates could trend down from their historical averages (above 80 percent for senior unsecured creditors) and converge close to zero, as observed in the United States (Glionna, 2012 a).
The SMP and CBPP are now terminated, and the OMT has not been used yet.
“The funding costs for the wholesale group are likely to be lower under the branch structure, given the flexibility to move funds to where they are most needed. A subsidiary structure, in contrast, puts constraints on the banking group’s ability to transfer funds across borders and hence may be less suitable for wholesale activities. For a global retail bank, however, a more decentralized subsidiary model may work better because of its focus on serving local retail clients and its reliance on local deposits and local deposit guarantees. ”
The initiative has been developed by the Association for Financial Markets in Europe (Afme) and the European Financial Services Roundtable (EFR), two banking and financial services trade bodies.
Available via the internet: http://www.bankofengland.co.uk/publications/Pages/news/2012/067.aspx
Available via the internet: http://www.imf.org/external/np/speeches/2012/041712.htm