A version of this blog post was originally published by Wall Street & Technology.
Funding is the lifeblood for any leveraged institution. If the funding structure changes, so does the balance sheet composition and the fundamental profitability of the bank. With a sufficiently large outflow of funding, even the existence of a bank is at stake.
In the flurry of emergency measures issued by central banks during the 2008 financial crisis, banks were provided essentially costless liquidity. Policy normalization is likely to reverse this as other funding markets open up again. Furthermore, considering delayed investment decisions by individuals, precautionary saving and a search for as safe and liquid an asset as possible, bank deposits might not remain as stable as they seem to be now. Therefore, treasurers face two challenges: market-based credit intermediation (also known as wholesale funding) and retail funding.
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