Hardie, Iain, and David Howarth. "Framing Market-Based Banking and the Financial Crisis". In Market-Based Banking and the International Financial Crisis, edited by Iain Hardie and David Howarth, 22-55. Oxford: Oxford University Press, 2013.

Hardie, Iain, and David Howarth. "Framing Market-Based Banking and the Financial Crisis". In Market-Based Banking and the International Financial Crisis, edited by Iain Hardie and David Howarth, 22-55. Oxford: Oxford University Press, 2013.

• Changes in the activities of banks during the early 21st Century destroyed much of the prior distinction between bank-based and capital market-based financial activity, leading to the rise of market-based banking (22, 51). Unlike traditional banking, where lending is based on the calculations of the bank itself, lending in market-based banking is determined largely by market forces because there is an intent to sell the loan on the market, directly or as a security (22-25). Additionally, loans are financed by borrowing from financial markets, which determine the availability and price of credit to banks (26).
• In traditional banking, neither assets nor liability are market-based: most assets are long-term loans to non-financial companies, and most liabilities are bank deposits (24).
• 'Market-based banking' has previously been used to refer to 'shadow banking', the provision of credit by institutions other than commercial banks, like money market funds, investment banks, and other financial vehicles. The authors use the term to refer to any type of banking that is dependent on the market (24, 34), especially because the distinction between the behavior of commercial banks and other financial institutions has virtually disappeared under market-based banking (27).
• Financial institutions besides commercial banks exist in many countries, but they are only prominent in the USA, shaping the unique financial system in that country (26).
• If market-based banks do decide to retain loans that they have made, they will usually guarantee or insure the loan through a 'credit default swap'. The provision of a credit default swaps is a major factor in whether loans are made and at what rate (26).
• Market-based banking has not disappeared in the aftermath of the 2008 financial crisis, although many of its features have vanished, including ABCP conduits and prominent investment banks, and 'shadow banking' has greatly lessened. However, banks continue to run funding gaps and make up the difference through market-based banking, additionally, many of the financial organizations bailed out by government were market-based non-bank financial institutions (51). 
• The exception to this trend is Japan, which has eliminated its funding gap and actually holds deposits in excess of the demand for loans (51).
• Market-based banking can express itself in a number of different ways. Banks can use deposits to fund market-based assets, which they will then sell on financial markets. Banks can also purchase liabilities on financial markets and then use those liabilities to fund traditional loans and assets. Banks can also do both, using financial markets to fund assets to be resold on financial markets (26-27).
• The change to market-based banking affected the exposure of banks to the 2008 financial crisis. It has greatly increased the number of assets sold on the market and reduced the relative number of traditional loans by banks. Additionally, fewer loans are retained on bank balance sheets, instead being sold on the market. Moreover, loans that are kept are insured via credit default swaps. In the USA and UK, investment banks have also become increasingly involved in lending (27-29).
• The very high rate of lending by banks, financed through the purchase of loans acquired on financial markets, mean that the funding provided by deposits is no longer enough to cover the needs of the financial market (29).
• Market-based banking exposed banks to greater risks during the 2008 financial crisis to which more traditional banks were relatively immune. Those banks that did not engage in market-based banking generally only suffered during the crisis later and from more conventional problems, like government debt and bad loans (46).
• Since market-based assets are pegged to their value on financial markets, their value on balance sheets will fluctuation according to those markets, with implications for profitability, the lending capacity of banks, and calculation of losses. (32-33). 
• Choosing to mark asset values to market demand is thus a risky move, as it left them exposed to greater losses. Exposure of this variety differed between countries, with France, the UK, and US investment banks being very exposed and Japan, Italy, and Spain having little of this type of exposure (34).
• Global financial markets hit their nadir in March 2009, during which the Bank of England estimated that total asset losses in the crisis were approximately 40% of global GDP. This latter recovered to 30% of global GDP by 2010 (32).
• Companies, most prominently asset-backed commercial paper [ABCP] conduits, were established by banks for the purpose of purchasing securities and other assets from banks in a capital-efficient manner. These conduits, in turn, financed these purchases through short-term borrowing on money market funds by issuing their own securities. In weak markets, conduits can no longer fund themselves because no one will lend to them, meaning that banks have to assume the full cost of and payments on the assets owned by the conduits (35).
• This market in ABCP conduits collapsed on 9 August 2017, when BNP Paribas halted withdraws from three funds, triggering a market scare. Only 2.5% of ABCP actually defaulted, with most assets instead being assumed by banks at a cost of between $68 billion and $204 billion. At its height in July 2007, the ABCP market totaled $1.3 trillion, twice the amount it had been worth in 2004 (35).
• Banks acquiring liabilities by borrowing from financial markets exposes them to additional risk and ties their lending ability more closely to market cycles, whereas banks with large deposit liabilities can lend more money during a market contraction. This effect varied depending on the type of borrowing, with longer-term borrowing generally having less impact on bank behavior (37).
• European banks were particularly exposed to contractions in the availability of short-term financing during the 2008 financial crisis, with British banks particularly dependent on overnight interbank loans. Availability of this funding massively shrunk during the crisis, with a $812 billion reduction in borrowing in the second quarter of 2008 alone (38).
• British banks were extremely dependent on short-term market-based financing, primarily overnight international interbank loans and short-term commercial paper. British banks were also heavily involved in issuing market-based assets, especially the sponsorship of ABCP conduits. British commercial banks show many of the same vulnerabilities as American investment banks, including a large funding gap (39).
• Belgian banks had little dependence on market-based liabilities, sourcing loans mainly through deposits. They were, however, involved in sponsoring ABCP conduits and selling market-based assets (39).
• The German banking system is heterogenous and has a number of traditional saving banks and a number of major market-based banks. Large German banks did purchase market-based liabilities, but these tended to be more secure and on a longer-term basis, with almost no overnight interbank loans. German banks were heavily involved in ABCP conduits and played a major role in selling market-based assets (39-40).
• French banks were heavily involved in selling market-based assets, but did not usually sponsor ABCP conduits. French banks also borrowed heavily from markets, but generally depended on longer-term financing and not overnight interbank loans (40).
• Spanish banks have a large funding gap, having borrowed heavily on financial markets, particularly using US dollar international interbank loans. These liabilities were mainly used to lend more domestically, and Spanish banks were not generally involved in market-based assets (40).
• Italian banks also had a large funding gap, second only to British banks, but primarily borrowed liabilities through long-term bonds. When interbank loans did occur, they were generally between Italian banks rather than being international. Italian banks also tended to stick to traditional loans and, when market-based assets, were issued, they were generally sold to Italian firms (40-41). 
• Banks, particularly American banks, operated on an 'originate to distribute' model of financing loans that were then sold on financial markets leaving the official bank balance sheets. The market for these securities and loans had grown fivefold between 2000 and 2007, when it reached $225 billion, but it was still relatively new and mainly sold to banks, meaning banks held the majority of these assets during the 2008 financial crisis (42-43).
• The absence of these loans from balance sheets does not, however, reflect the reality that these assets often remain held by the originating bank for weeks before they are actually transferred (42-43).
• Many of the loans sold by banks, including subprime mortgage loans, were first combined with other loans and sold as securities. Most securities were issued by American banks and sold to European banks, but European banks were also beginning to issue their own securities in the mid-2000s, particularly Britain, Germany, Canada, and Netherlands (44-45).
• Not all securities were the same, as the vast majority of securities issued by American, Netherlandish, and Canadian banks were based on mortgages, as were around half of all securities issued by Spanish and British banks, whereas Italian and German banks mainly issued securities without mortgages, and whose value thus did not depend on home prices (45).
• Not all banking systems suffered equally in the 2008 financial crisis, and some market-based banking systems, like France, performed much better than others, like the USA and UK. The presence of 'shadow banking' and nonbank financiers correlates to the severity of the crisis's impact on the economy, as did the importance of commercial banking to the economy, which was very high in Netherlands and the UK (47-48).
• Figure provided on page 42.