FI Analysis 31: Funding structure of the major banks – historical trends

2021-05-11 | Reports Bank

This FI analysis describes the funding structure of the major Swedish banks in the period 2002–2019. Consequently, the period analysed does not cover the ongoing pandemic and its impact on the financial markets through central banks’ and supervisory authorities’ various monetary policy and supervision measures.

Major Swedish banks obtain a large portion of their market funding through commercial paper and covered and unsecured bonds. Market funding has increased and, in 2019, accounted for the same share of total funding as deposits. At the beginning of the period, this share was around 10 percentage points lower. The bulk of market funding is issued in various foreign currencies.

However, short-term market funding in the form of commercial paper has decreased in favour of bonds, which is a longer form of funding. This is likely to be a consequence of regulatory requirements such as the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), which probably have affected the maturity of these liabilities to be longer overall.

Although market funding has increased in terms of its share of the banks' total liabilities, the ratio between deposits and borrowing in Swedish kronor has decreased. This means that lending in Swedish kronor at the end of the period is covered by deposits to a greater extent. The trend for foreign currency has been the opposite. At the beginning of the period, the banks had a large surplus of deposits, but now market funding is also required in foreign currency in order to cover the deficit in funding of foreign lending operations.

At the same time, unsecured debt in foreign currency for covering the funding deficit that exists in Swedish kronor has decreased sharply – both as a share of the deficit and in nominal terms. This has taken place at the same time as the banks' total balance sheets have expanded by around 150 per cent over the period. The banks are also using a large portion of their market funding for the liquidity reserve in foreign currency.

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