Funding modes of German banks: structural changes and its implications

This paper examines funding modes of German banks and its implications for lending and profitability over the period 1992-2002. Analyzing individual-bank data from the Deutsche Bundesbank, we first find that deposits from customers lose ground in relative terms while interbank liabilities increase as a source of funding. Second, we cannot detect a negative impact of the relative decline in deposits on the lending business. In contrast, loans to customers become even slightly more important. Third, the decreasing ability of banks to mobilize deposits from customers and the substitution of deposits by interbank liabilities unfavorably affects the net interest results of savings banks