Dynamics of Bank Capital Structure in light of Triple Crises

Purpose This study seeks to analyse banks’ capital structure around the world by incorporating the impact of three major crises: the Global Financial Crisis (GFC), the COVID-19 pandemic, and the Russia-Ukraine war. Using a Two-Step Generalized Method of Moments (GMM) model, our study examines the determinants of six key financial variables for banks, including total debt (TD), short-term debt (STD), long-term debt (LTD), total liabilities (TL), interest-bearing liabilities (IBL), and non-interest-bearing liabilities (NIBL) and how these were affected by the triple crises. Results The results document strong persistence in all bank liability configurations, with coefficients ranging from 0.591 to 0.872, confirming substantial path dependence in banks’ financing decisions. Asset growth rates are found to have mixed results while liquidity measures register significant negative relationship with most debt variables, supporting the Pecking Order Theory. On the other hand, profitability posts mixed effects. Across all three crises, evidence is found in favour of non-interest-bearing liabilities declining consistently while interest-bearing obligations increasing. Such a crisis-period funding hierarchy suggests a fundamental inversion of the pecking order under stress, as depositors flee non-interest-bearing accounts and banks reluctantly substitute toward higher-cost, contractually committed debt. We also document that the GFC and Russia – Ukraine war positively and more significantly impacts debt accumulation, as compared to the COVID-19. Conclusion Our findings carry critical implications for global regulators: although current rules assume non-interest-bearing deposits remain stable during crises, we show that customers consistently withdraw these funds when uncertainty hits, forcing banks to replace their cheapest funding source with costly debt. Regulators should therefore recognize that under crisis conditions, these deposits are less stable than assumed and adjust liquidity requirements accordingly. We also show that systemic financial shocks (GFC) as well as endemic geopolitical tensions (Russia – Ukraine war) trail behind significantly more impact as compared to unexpected global temporal pandemics (COVID-19).