In the UK, for example, bank (and building society) deposits still account for 42% of personal sector liquid asset holdings against 50% a decade ago; the proportion would be very much higher if liquid assets included only those that are capital certain. And the vast bulk of the banks’ liabilities remain in the form of unsecured, short-term, deposits. Despite the rapid development of (secured) repo markets, only some 3% of the major UK banks’ funding (in sterling and foreign currency together) was secured (from information provided last Autumn) through repo; and the figure for all UK banks, including the business conducted in branches and subsidiaries of overseas banks, which have less direct access to deposits, was only around 8½%. The proportion of secured funding is below 5% for other major internationally active banks that we have looked at, with the exception of JP Morgan and Bankers Trust - both somewhat special cases - where the proportion is very  BIS Review 13/1997  -4-  much higher (25-35%). And even in those special cases it is still well below that for the major US securities firms (typically 55-80%). Banks remain, too, at the heart of payments systems. Payments may be made directly across bank accounts through instructions, for example, in the form of cheque or debit card; or they may be made indirectly, through, for example, the use of credit cards, the balances on which are subsequently settled using a bank account.
But except in the US, securitisation has in fact so far made only limited progress, and debt sales have been focused mainly on impaired developing country or corporate debt. One reason why prime corporate loans are not so far traded is the importance that both banks and borrowers still attach to their mutual relationships. My guess is that the liquidity of bank assets by these means will gradually increase; and that process may be helped by the development of techniques such as credit derivatives. But for the time being - and indeed some time to come - bank loans are, for the most part, likely to remain illiquid in most countries. BIS Review 13/1997  -5-  We can nevertheless look at the crude balance sheet data, and, for what they are worth, we have looked at the share of loans to non-banks in total assets as a measure of the liquidity of the asset portfolio for a range of different types of institution. These data show that: for some representative small, domestic, UK banks the loan ratio is still some 70-80% of the total, apparently with no particular trend; for large UK, internationally-active, banks the share of loans is currently around 50%, having fallen quite sharply from some 65-70% some five years ago, perhaps reflecting the expansion of their investment banking activity; for large continental banks the share of loans is either side of 50%, having fallen more gradually. Again JP Morgan and Bankers Trust are outliers.