Basel III long-term liquidity standard in the context of the profitability of banks and volatility of their stock prices – quantitative analysis for the euro area

Marcin Flotyński
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Marcin Flotyński: Poznan University of Economics and Business

No 274, NBP Working Papers from Narodowy Bank Polski

Abstract: The paper is devoted to the Net Stable Funding Ratio (NSFR) - the liquidity regulation included in the Basel III recommendations. The aim of the article is to verify the impact of stable funding structure measured by estimated NSFR on the profitability of banks and the volatility of their stock prices. It embraces the data of the 100 biggest banks in the euro area which are listed on stock exchanges. The research area of this article is divided into two parts. The first one is devoted to the relation between the NSFR and bank profitability. In the second one, the relation between the NSFR and a bank’s valuation (stock prices) and the volatility of stock prices on the capital market is presented. Models with financial and macroeconomic variables were used. The research results showed that there is a positive and statistically significant relation between the level of the NSFR in banks and their profitability measured by the return on average assets (ROAA), the return on average equity (ROAE) and the net interest margin (NIM). Furthermore, a growing NSFR has a positive influence on changes of stock prices and a negative influence on the level of their volatility.

Keywords: banking sector; regulation; funding structure; liquidity; Basel III; Net Stable Funding Ratio (NSFR); volatility of stock prices (search for similar items in EconPapers)
JEL-codes: C33 G10 G15 G17 G21 (search for similar items in EconPapers)
Pages: 101
Date: 2017
New Economics Papers: this item is included in nep-cba and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:274

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