Monday, 5 December 2011
UK banks reduce their customer funding gaps
UK Banks may have learnt something from the crisis. Banks have tried hard to reduce their dependence on the wholesale funding market. It was Northern Rock's excessive use of the wholesale funding market and comparatively weak depositor base that pushed it over the edge during the summer of 2007.
The customer funding gap is the difference between customer lending and customer deposits. In this context, "customer" has a wide meaning, referring to all non-bank borrowers and depositors.
This gap as fallen by over £600 billion since the onset of the crisis. It has also fallen as a percentage of customer loans. According to the Bank of England, the bulk of this decline is due to reduced overseas lending and in lending to non-bank financial companies.
The good news is that this development has made our banks a little more resilient to any renewed funding pressures. And when we look across the channel, one has to be very fearful of what problems the Eurozone might dump on Britain.