Capital account liberalization and the composition of bank liabilities

•We study the impact of capital account liberalization on bank funding structures.•Our analysis includes nearly 600 Latin American banks since the 1990s.•Capital account liberalization lowers bank equity and raises interbank funding.•The shifts are stronger for large and informationally less opaque banks.•The effects are stronger when global money market rates are lower. Using a sample of almost 600 banks in Latin America, we show that capital account liberalization lowers the share of equity and raises the share of interbank funding in total liabilities of the banking system. These shifts are mostly due to large banks; smaller banks, instead, increase their resort to retail funding by offering higher average deposit interest rates than larger banks. We also find significant differences in the behavior of banks with seemingly greater information opacity. These findings have positive implications for macro-prudential regulation.