Wholesale Funding
Wholesale funding refers to large-scale borrowing by banks from institutional investors and financial markets rather than retail depositors.
Meaning in Practice
Banks raise wholesale funding through bond issuance, interbank loans, and money markets. This funding is often short-term and sensitive to market conditions. Heavy reliance can increase refinancing risk.
Why It Matters
Wholesale funding supports balance sheet expansion but may heighten liquidity vulnerability. Sudden market disruptions can restrict access to funding. Diversified funding structures enhance resilience.
Market Impact
Rising wholesale funding costs reduce bank profitability and may lead to tighter lending conditions. Market stress can trigger rapid funding outflows. Investors closely monitor funding composition and maturity profiles.
Example
A bank issues short-term commercial paper to institutional investors to finance its lending activities.