BoE paper highlights non-linearities in bank funding and solvency
Results could be important consideration in stress-test design, authors say
The link between bank funding and solvency is non-linear and switches from a negative to a positive relationship beyond a certain point, research published by the Bank of England finds.
The working paper, Bank funding costs and solvency, by Guillaume Arnould, Cosimo Pancaro and Dawid Żochowski, examines funding costs for overnight deposits, term deposits and senior bonds in a “large sample” of eurozone banks. The authors find term deposits and senior bonds have a significant, convex, negative
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