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Net stable funding ratio and profit efficiency of commercial banks in the US

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  • Le, Minh
  • Hoang, Vincent
  • Wilson, Clevo
  • Managi, Shunsuke

Abstract

The net stable funding ratio (NSFR) is introduced under Basel III to promote financial stability. Under this new regulation, individual financial institutions are required to maintain a sustainable funding structure; hence this new universal requirement is expected to affect bank operation. In this paper, we provide one of the first empirical examinations of the non-linear relationship between NSFR and profit (in)efficiency for commercial banks using two data sets from Bankscope (for years from 2000 to 2015) and Federal Financial Institutions Examination Council call reports (2000-2013 period). Our results suggest that modest intensification in liquidity helps to reduce bank profit inefficiency (i.e. increase efficiency) but too much liquidity enlargement could increase the inefficiency. This result is consistent with a trade-off hypothesis on the non-linear relationship between liquidity and bank performance.

Suggested Citation

  • Le, Minh & Hoang, Vincent & Wilson, Clevo & Managi, Shunsuke, 2019. "Net stable funding ratio and profit efficiency of commercial banks in the US," MPRA Paper 107179, University Library of Munich, Germany, revised 16 May 2020.
    • Handle: RePEc:pra:mprapa:107179
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    More about this item

    Keywords

    NSFR; liquidity; profit inefficiency;
    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

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