The 2007–2008 Global Financial Crisis (GFC) was characterized by a credit crunch that brought the financial system to the edge of collapse. Since then, much has been written about how bank lending has changed in the wake of the GFC. But banks have also changed how they fund this lending. This is important for two reasons. First, how a bank funds its lending affects its short- and long-term cost structure and consequently its earnings. Second, funding structure is also important for financial stability. Some changes in how banks fund their lending have made the banking industry more stable, but there are several potential sources of instability resulting from developments in the funding structure of banks. What's more, these changes in funding structure may pose new challenges for smaller banks.
This article appeared in the Fourth Quarter 2025 issue of Economic Insights. Download and read the full issue.
View the Full Article