How did banks´ reliance on short-term funding affect their performance during the 2008 financial crisis?

Abstract

This thesis investigates the relationship between short-term funding and bank performance during the 2008 financial crisis. The research is conducted by running cross-sectional regressions on the 50 largest banks in the world for the three time periods of 2006, 2007-2008 and 2007-2009. The regressions expand as the analysis is conducted, first to see if short-term funding is significant for the different time periods and further to measure whether other variables had an effect. The first analysis shows that banks with a high reliance on short-term funding prior to the crisis performed worse during the crisis. When testing for the effect of leverage, i.e. total debt, there is evidence that it was leverage rather than short-term funding seen in isolation that had an effect on bank performance during the financial crisis.