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

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  • King, Michael R.

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.

Suggested Citation

  • King, Michael R., 2013. "The Basel III Net Stable Funding Ratio and bank net interest margins," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4144-4156.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4144-4156
    DOI: 10.1016/j.jbankfin.2013.07.017
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    More about this item

    Keywords

    Banks; Funding risk; Liquidity; Regulation; Basel III; Net interest margins;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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