Bank Funding Strategies After Bail-in Announcement

The introduction of the bail-in might have induced a radical change in the funding strategy of banks. Changes in the legal protection of funding instruments can have implications for the cost and composition of banks’ liabilities. In particular, the introduction of the bail-in mechanism implies an increase in the credit risk of banks’ bondholders. Empirical evidence shows that, after the launch of the bail-in mechanism, banks privileged funding via customer deposits—the cheapest source of funding. This may enhance the liquidity risk due to asset-liability mismatch as customer deposits are the source of funding with the shortest maturity.