Playing by the rules: Do the post‐crisis regulations influence banks' funding model in the EU?

Abstract

In the article, we assess the impact of the regulatory framework on banks' funding models in the European Union in the period 2011–2018. We put particular emphasis on the capital requirements captured by two different types of regulatory measures: individual and sectoral. Moreover, we include a country‐level regulatory variable to assess if the overall lawmaking conditions impact banks' funding models. Our estimates indicate that after the Global Financial Crisis, all regulatory measures had a significant impact on the deposits to total assets ratio, which we assume to be the best proxy for banks' funding models. Having divided the sample of the EU banks into four subsamples according to their specialization (i.e. commercial, cooperative, savings, and investment banks), we identified significant differences in strength and direction of regulatory variables' impact on banks' funding model within selected subsamples. In particular, due to the specific nature of investment banks, prudential regulations contribute to a change in the funding model towards safer deposit funding. Moreover, our results indicate that in the case of the non‐euro area banking sector, the regulatory environment measured by the regulatory quality index has an adverse impact on the Deposits to total assets ratio in comparison with both the entire sample as well as the euro area banking sector.