Bank Funding, Liquidity, and Capital Adequacy

Bank Funding, Liquidity, and Capital Adequacy

A Law and Finance Approach

Elgar Financial Law series

José Gabilondo

Focusing primarily on the banking system in the United States, this book offers an innovative framework that integrates a depository bank’s liquidity and its capital adequacy into a unified notion of funding that helps to explain how the 2007–2008 crisis unfolded, why central banks succeeded in resolving the crisis, and how the conceptual legacy of the crisis and its resolution led to lasting changes in bank funding regulation, including new objective requirements for bank liquidity. To provide a comparative context, the book also examines the funding models of non-bank intermediaries like dealer banks and insurers.

Chapter 7: Concluding observations

José Gabilondo

Subjects: law - academic, commercial law, corporate law and governance, finance and banking law, regulation and governance


The book concludes with five major conclusions about bank funding. First, bank funding should be seen as an organic notion that internalizes the funding liquidity and loss-absorption consequences of the bank’s role as an intermediary. Second, within this notion short-term funding liquidity – its money position – deserves special, focused attention because it is the bank’s financial threshold for survival. Third, funding regulation – be it of banks or nonbank intermediaries – should be seen as a unified field with inter-related elements that address funding liquidity and loss-absorption in complementary and, to a certain extent, substitutable ways. Fourth, since the crisis lawmakers are more likely to look beyond an enterprise’s regulatory shell to determine whether the enterprise presents financial risks that justify funding regulation. Finally, these developments elevate the status of the bank’s treasury operations, a back office function that has become a hive of compliance initiatives and profit-seeking strategies. As banks contend with growing funding requirements, treasury operations will be at the heart of the business model.

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information