Economic Policy Review
Literature Review on the Stability of Funding Models
2014, Volume 20, Number 1
JEL classification: G21, G01
Financial intermediaries have an important role as liquidity providers—they perform maturity and liquidity transformation by issuing liquid, short-term liabilities while holding illiquid, long-term assets. But there is an inherent fragility associated with this role. This article provides a review of the economics literature on the stability of banks and other financial intermediaries, with a policy-oriented focus on their funding models. Yorulmazer employs the standard framework used in the literature to examine the fragility of intermediaries that conduct maturity and liquidity transformation. He then considers potential factors that make them more or less stable. Developments in the financial sector that may have affected the stability of funding models are also discussed.