Wholesale Fund Vulnerability and Bank Lending Behavior

摘要

Bank lending that its risk is needed to be managed and avoided for a prudent banking system is crucial for economic growth. The mismatch between funding’s and lending’s due date is becoming one of banking problems since it could lead to insolvency. The structure of bankfunding might have an important role in determining bank’s stability. The global financial crisis in 2007–2009 had taught us that banks with higher wholesale funding are more vulnerable. When there is a bad signal in the market, wholesale fund’s investors are more likelyto withdraw their funds. It could be bad for banks with higher wholesale fund if most of their funds are withdrawn suddenly. This research emphasizes that less wholesale funding would be more beneficial for banks especially when there is a liquidity crisis. The behavior of bank lending isalso examined by the lending supply and demand’s financial conditions. This research analyze commercial banks in Indonesia that provide long-term bank lending and manufacturing firms listed in Indonesia Stock Exchange as the borrowing firms from 2011 until 2014. The Arellano-Bond lineardynamic panel data method is used to analyze the determinants of bank lending. The results show that banks with higher core funding can provide more lending even if there is a liquidity crisis. There is also evidence that bank lending is related with its previous lending. It also proves thatbigger firms did not receive higher bank lending and banks provide lending regardless its borrower’s value and leverage. Bigger banks and banks with less credit risk would provide more lending while bank’s capital requirement cannot determine bank’s capacity in providinglending.