Using US commercial bank data from 2002 to 2012, this paper investigates whether wholesale financiers discipline bank by withdrawing funds from risky ones and/or charging them higher interest rates. Contrary to previouw literature, there is no evidence for market discipline in terms of wholesale funding supply until 2010 when the Dodd-Frank Act was introduced. Risky banks ontain more wholesale funding than safe banks in the pre-crisis period. Furthemore, this result holds during the financial crisis period of 2008. Wholesale financiers demand higher interest rates for riskier banks only during the crisis and the post-crisis periods.
Keyword: Wholesale Funding, Market Discipline, Finandial Crisis, Bank Risk
