Funding Concentration

Funding concentration is the extent to which a bank, finance company or other borrower depends on a narrow set of funding sources, such as a few large lenders or depositors, one type of instrument, one market or one currency. High concentration means that the loss of a single source, or a shock to one market, could leave a large funding hole at short notice. It is broader than deposit concentration risk, because it also covers wholesale deposits, repo, bonds and central bank borrowing. Under the Basel III liquidity framework, concentration of funding is one of the monitoring tools that supervisors use alongside the liquidity coverage ratio and the net stable funding ratio, with reports by significant counterparty, product and currency. Also see liquidity risk management.