The Basel III Net Stable Funding Ratio and bank net interest margins

Michael King

Journal of Banking & Finance, 2013, vol. 37, issue 11, 4144-4156

Abstract: The Net Stable Funding Ratio (NSFR) is a new Basel III liquidity requirement designed to limit funding risk arising from maturity mismatches between bank assets and liabilities. This study explains the NSFR and estimates this ratio for banks in 15 countries. Banks below the ratio need to increase stable sources of funding and to reduce assets requiring funding. The most cost-effective strategies to meet the NSFR are to increase holdings of higher-rated securities and to extend the maturity of wholesale funding. These changes reduce net interest margins by 70–88 basis points on average, or around 40% of their year-end 2009 values. Universal banks with diversified funding sources and high trading assets are penalized most by the NSFR.

Keywords: Banks; Funding risk; Liquidity; Regulation; Basel III; Net interest margins (search for similar items in EconPapers)
JEL-codes: E51 G21 G28 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (94)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:11:p:4144-4156

DOI: 10.1016/j.jbankfin.2013.07.017

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