The Determinants of Structural Liquidity in Brazil: what to expect for the NSFR?

Yure Nuic, Cleysson Vieira and Marcos Silva

No 443, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper empirically investigates the main determinant factors of the new prudential liquidity requirement, the Net Stable Funding Ratio (NSFR), and assesses the possible impacts of its implementation on the Brazilian banking system. To this end, a dynamic panel of 131 financial institutions was estimated for the period between 2008 and 2014. The results indicate that the cost of adjusting the structural liquidity of Brazilian banks is relatively moderate, requiring about eight quarters for a complete absorption of an exogenous shock. Additionally, the results do not indicate that the NSFR has a negative impact on banks’ profitability, as measured by the adjusted return on average assets (ROAA). This suggests a compatibility between lower structural liquidity risk and higher profitability in the long run. Finally, the NSFR presented itself countercyclical, showing its ability to mitigate excessive growth of banking operations during the phase of economic expansion, contributing to the stability of the financial system.

Date: 2016-06
New Economics Papers: this item is included in nep-ban and nep-cse
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