Net stable funding ratio and profit efficiency of commercial banks in the US

Minh Le, Viet-Ngu Hoang, Clevo Wilson () and Shunsuke Managi

MPRA Paper from University Library of Munich, Germany

Abstract: The net stable funding ratio (NSFR) is introduced under Basel III to promote financial stability. Under this new regulation, individual financial institutions are required to maintain a sustainable funding structure; hence this new universal requirement is expected to affect bank operation. In this paper, we provide one of the first empirical examinations of the non-linear relationship between NSFR and profit (in)efficiency for commercial banks using two data sets from Bankscope (for years from 2000 to 2015) and Federal Financial Institutions Examination Council call reports (2000-2013 period). Our results suggest that modest intensification in liquidity helps to reduce bank profit inefficiency (i.e. increase efficiency) but too much liquidity enlargement could increase the inefficiency. This result is consistent with a trade-off hypothesis on the non-linear relationship between liquidity and bank performance.

Keywords: NSFR; liquidity; profit inefficiency (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2019-10-21, Revised 2020-05-16
New Economics Papers: this item is included in nep-ban and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Net stable funding ratio and profit efficiency of commercial banks in the US (2020)
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