Wholesale
Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...
funding is a method that banks use in addition to core
demand deposits
Demand deposits or checkbook money are funds held in demand accounts in commercial banks. These account balances are usually considered money and form the greater part of the narrowly defined money supply of a country. Simply put, these are depo ...
to finance operations and manage risk. Wholesale funding sources include, but are not limited to,
Federal funds
In the United States, federal funds are overnight borrowings between banks and other entities to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear ...
, public funds (such as state and local municipalities), U.S.
Federal Home Loan Bank
The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide liquidity to the members of financial institutions to support housing finance and community investment.
Overview
The FHLBank System was ...
advances, the U.S.
Federal Reserve's primary credit program, foreign deposits, brokered deposits, and deposits obtained through the Internet or CD listing services.
Rationale
Although core deposits continue to be a key liability funding source, many insured depository institutions have experienced difficulty attracting core deposits and are increasingly looking to wholesale funding sources to satisfy funding and liability management needs.
Liquidity risk
Wholesale funding providers are generally sensitive to changes in the credit risk profile of the institutions to which they provide these funds and to the interest rate environment. For instance, such providers closely track the institution's financial condition and may be likely to curtail such funding if other investment opportunities offer more attractive interest rates. As a result, an institution may experience liquidity problems due to lack of wholesale funding availability when needed. Academic research suggests that the use of wholesale funding was one of the major determinants of bank vulnerability during the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
.
[
]
See also
*
Bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
*
Interbank lending market
The interbank lending market is a market in which banks lend funds to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being over day. Such loans are made at the interbank rate (also call ...
*
Funding liquidity Funding liquidity is the availability of credit to finance the purchase of financial assets. The International Monetary Fund (IMF) defines funding liquidity as "the ability of a solvent institution to make agreed-upon payments in a timely fashion".
...
References
{{reflist
External links
FDIC's Risk Management Manual of Examination Policies (Sec 6.1: Liquity and Funds Management)
Banking terms