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This article originally appeared on the Retail Banking Academy Blog – By 

It is well-known that Basel III categorizes retail deposits as a relatively stable source of funding for banks. The two key liquidity standards (Leverage Coverage Ratio and Net Stable Funding Ratio) reward banks that are mostly retail-funded. A recent study by the Bank of International Settlements (BIS) has placed retail-funded banks in a new and even more positive light.

The study consisted of 222 lenders for the period 2005-2013 which found that commercial banks that are funded mainly by retail deposits have the highest average return on equity (ROE) of 12.5% compared to investment (i.e., trading) banks which achieved an average ROE of 8.1%. Wholesale funded banks earned an average ROE of 5.8%.  The report also shows a spectacular average risk-adjusted ROE for retail-funded banks (8.76%), 2.5% for wholesale-funded banks and a conspicuously negative 9.55% for trading banks.

The report concludes, “regardless of the profitability metric, the retail-funded model is the top performer.” This conclusion is consistent with the findings in a paper by Altunbas et al (2011) who document that banks with a greater share of deposits in their funding mix fared significantly better in the recent financial crisis than those dependent on market funding.

Conclusion:There is evidence that commercial banks funded primarily by retail deposits are more profitable and more resilient in periods of economic shocks.


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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Brad Strothkamp

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.