11.6.1 Why is this a relevant characteristic?

In several reports investigating the financial crisis, it is highlighted that many banks heavily relied on wholesale funding. For instance, the Liikanen report mentions the reliance of banks on short-term wholesale funding as one of the key factors in the build-up of systemic risk.1 Similarly, the Treasury Committee of the House of Commons noted that banks which relied most heavily on wholesale funding, rather than deposits, have proven to be most likely to fail.2

Since wholesale funding is short-term funding, it is not a very stable funding source.3 As long as the wholesale market is functioning well, an excessive reliance on wholesale funding does not have to be a problem. However, when the wholesale market dries up – which occurred after the collapse of Lehman Brothers – banks that are heavily dependent on wholesale funding may face liquidity problems. Those banks are no longer able to finance their operations.

One of the key lessons of the crisis is that banks that relied too heavily on wholesale funding should re-adapt their funding structure towards more stable funding sources. This is also recognised by the Commission in its decisional practice. The fact that the restructuring plan provides for a reduction of the bank’s reliance on wholesale funding is therefore a relevant characteristic.