The good and bad news about the new liquidity rules of Basel III in Western European countries

Andreas Dietrich (), Kurt Hess and Gabrielle Wanzenried

Journal of Banking & Finance, 2014, vol. 44, issue C, 13-25

Abstract: New liquidity rules phased in under Basel III define the new net stable funding ratio (NSFR) to promote sustainable funding structures at financial institutions. In this paper, we analyze characteristics and drivers of NSFR for a sample of 921 Western European banks between 1996 and 2010. We find that a majority of banks have historically not fulfilled NSFR minimum requirements, in particular larger and faster growing institutions as well as banks also active in asset management and investment banking. Many of them have started increasing NSFR with the onset of financial crisis 2008 while this ratio had been sliding in earlier years. Interestingly, potential advantages in funding costs for low NSFR banks do not seem to translate into higher profitability and results of these banks are more volatile.

Keywords: Banking regulation; Financial stability; Net stable funding ratio; Liquidity ratio; Basel III (search for similar items in EconPapers)
JEL-codes: G21 G28 G38 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (60)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:44:y:2014:i:c:p:13-25

DOI: 10.1016/j.jbankfin.2014.03.041

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