UK Government controls and loan-to-deposit ratio

<div><h3>Purpose</h3><p>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.</p></div><div><h3>Design/methodology/approach</h3><p>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.</p></div><div><h3>Findings</h3><p>The results show that wholesale funding, government intervention and repression were the major forces behind LTD trends.</p></div><div><h3>Originality/value</h3><p>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.</p></div>