Net Stable Funding Ratio: Implication for Bank Stability in Europe

Imtynan Khalifeh (), Francois Benhmad, Chawki El Moussawi () and Amine Tarazi
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Imtynan Khalifeh: MRE - Montpellier Recherche en Economie - UM - Université de Montpellier
Francois Benhmad: MRE - Montpellier Recherche en Economie - UM - Université de Montpellier
Chawki El Moussawi: 2Faculty of Economics and Business Administration, Department of Economics, Lebanese University, Branch 1, Lebanon

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Abstract: This paper investigates the relationship between the net stable funding ratio (NSFR) and bank stability in Europe over the 2007-2022 period. By employing a two-step GMM panel model, we find a positive and significant link between the NSFR and banking stability in the European Union which is however stronger for banks located in the euro area than those in the non-euro area. Moreover, our results show that, within the euro area itself, for banks operating outside the core euro area, stronger liquidity positions do not translate into higher stability but conversely to higher instability. Overall, our findings highlight strong differences into how liquidity requirements relate to bank stability within the European union and also within the euro area itself which call for action by bank regulators.

Keywords: Basel III; NSFR; Bank Stability; Euro area; Non-euro area; Core and Peripheral (search for similar items in EconPapers)
Date: 2025-02-18
Note: View the original document on HAL open archive server: https://hal.science/hal-04787944v2
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Working Paper: Net Stable Funding Ratio: Implication for Bank Stability in Europe (2024)
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