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Net Stable Funding Ratio and Liquidity Hoarding

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  • Martin Windl

    (University of Augsburg)

Abstract

As a component of the liquidity requirements of Basel III, the Net Stable Funding Ratio (NSFR) seeks to limit the maturity transformation of banks. This paper examines whether the NSFR affects the inefficient precautionary liquidity hoarding of banks and the stability of interbank markets. Based on Acharya and Skeie (2011), the model introduces regulation into a two-period framework with asymmetric information and stochastic credit risk. As a result, due to regulatory costs, the NSFR increases the bid-ask spread on the interbank market. The effects depend strongly on the quality and the forbearance of the regulator. High-quality supervision counters the precautionary liquidity hoarding of banks resulting from asymmetric information, thereby decreasing market failure.

Suggested Citation

  • Martin Windl, 2019. "Net Stable Funding Ratio and Liquidity Hoarding," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 71(1), pages 57-85, February.
    • Handle: RePEc:spr:schmbr:v:71:y:2019:i:1:d:10.1007_s41464-019-00066-x
    DOI: 10.1007/s41464-019-00066-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Basel III; Regulation; Liquidity hoarding;
    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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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