Journal of Business & Economic Policy

Loan Volatility and Wholesale Funding in Iranian Banking System
Mahshid Shahchera

Abstract
This paper survey the relationship between wholesale liabilities and loan volatility. This paper argue that the low volume of retail deposits introduce costly to adjust to shocks in the volume of bank assets, banks facing more intense uncertainty and more volatile loan demand tend to employ more wholesale liabilities rather than retail deposits. Banks surface high uncertainty as measured by the volatility of loan volumes that have significantly lower ratios of retail deposits to total liabilities. Banks also tend to adjust their retail deposit volumes slower to loan volume shocks relative to banks facing lower volatility. This paper using a unique dataset of Iranian banking system and dynamic panel data show that liability structure hasstatistically strongly significant effect of bank-level loan volatility on the structure of bank liabilities. Banks react to loan shocks by mainly adjusting their wholesale volumes while the later are quicker to modify retail deposit volumes.

Full Text: PDF