To meet this challenge, banks must strive to fully understand the implication of relying on these types of funds both from a liquidity and earnings perspective. The Federal Reserve recently issued guidance on the use of complex wholesale borrowings and the banking agencies recently issued guidance on rate sensitive deposits to highlight the importance of adequate management techniques for ensuring stable and consistent funding.
Capital and supervisory initiatives The most stable funding source for bank balance sheets is shareholder equity. More significantly, shareholder equity's key feature is its ability to absorb losses. The need for banks to hold capital commensurate with the risk they undertake is highlighted by recent weaknesses in bank asset quality and the uncertain economic environment.