This paper aims to present an analysis of the UK bank loans and deposits in tandem, linking the loan-to-deposit (LTD) ratio to macroprudential policy and funding restrictions. LTD ratio is used by micro and macroprudential authorities to address both structural (long-term) and cyclical (short-term) liquidity risks. It is an outcome of several political and economic factors and should be evaluated against this background.
The authors use trend analysis and panel regression to investigate LTD ratio of Major British Banking Groups from 1945 to 2012 in the midst of changing the UK Government policies.
The results show that wholesale funding, government intervention and repression were the major forces behind LTD trends.
The authors recommend the use of LTD as a complement to other liquidity ratios in micro and macro-prudential regulation, particularly in the context of current reforms to banking capital requirements.
