Shocks Happen: Are Retail Deposits the Answer?

John Hill and Jeremy Chiu.

In September 2007, Northern Rock became the victim of the UK’s first bank-run since 1878. Northern Rock had lost access to the wholesale markets on which it relied for its funding.  Bank funding has remained a key issue for policymakers in the wake of the crisis, and has been the subject of new rules designed to promote funding resilience.   Today, banks are more reliant on retail deposits for their funding, but this could present other issues for the dynamics of retail deposits that are less well understood.  In this post, we introduce some of our own research that shows that banks are unable to raise deposits quickly in order to plug funding gaps opened up by adverse shocks.

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