The recent economic crisis and the associated turmoil in the financial markets have exposed serious vulnerabilities in bank funding strategies. Many assumptions about how funding markets behave in a crisis proved to be too optimistic. Previously reliable short-term, secured sources such as the repo markets became more expensive to access for even well-capitalized, healthy market participants.
The best-managed banks read these market disruptions early and used their asset and liability management processes and contingency funding plans to navigate the funding obstacles. However, many remained vulnerable, particularly as their asset quality and earnings performance deteriorated.