Bank liability structures are sometimes represented as an inverted pyramid and the following diagram is approximately to scale for a typical commercial bank. The first thing to notice is just how small the equity base at the apex of the pyramid is. The bulk of their funding comes from customer deposits and these are relatively short term (the proportion of time deposits with a maturity beyond 90 days (three months) is usually very small). Long-term debt is usually only a small fraction of total liabilities.
Deposits from other banks are usually made to support a correspondent banking relationship where the bank provides a local ser vice to another bank operating in a different region or country. Some deposits arise from bank’s activities in the wholesale interbank markets where they lend to and borrow from one another, usually on relatively short terms.
The interbank market is an important source of funding for many foreign banks operating in emerging markets. Branching restrictions mean they frequently lack the local currency deposit base enjoyed by domestic banks. This does, however, tend to put them at a disadvantage in terms of funding costs relative to local banks. Interbank rates in developing markets are often rather volatile as a consequence of their lack of depth and liquidity.