@techreport{d09e2478f60543ec8fba4d34d5549736,
title = "The Dark Side of Bank Wholesale Funding",
abstract = "Commercial banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the {"}bright side{"} of wholesale funding: sophisticated financiers can monitor banks, disciplining bad ones but refinancing solvent ones. This paper models a {"}dark side{"} of wholesale funding. In an environment with a costless but imperfect signal on bank project quality (e.g., credit ratings, performance of peers), short-term wholesale financiers have lower incentives to conduct costly information acquisition, and instead may withdraw based on negative but noisy public signals, triggering inefficient liquidations. We show that the {"}dark side{"} of wholesale funding dominates the {"}bright side{"} when bank assets are more arm's length and tradable (leading to more relevant public signals and lower liquidation costs): precisely the attributes of a banking sector with securitizations and risk transfers. The results shed light on the recent financial turmoil, explaining why some wholesale financiers did not provide market discipline ex-ante and exacerbated liquidity risks ex-post.",
keywords = "Banks, Crises, Funding, Deposits, Bank Runs, Monitoring, Market Discipline",
author = "R. Huang and L. Ratnovksi",
note = "This is also CentER Discussion Paper 59 S Pagination: 51",
year = "2009",
language = "English",
volume = "2009-18 S",
series = "EBC Discussion Paper",
publisher = "Finance",
type = "WorkingPaper",
institution = "Finance",
}