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Net stable funding ratio: Implication for Bank stability in Europe

Author

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  • Khalifeh, Imtynan
  • Benhmad, Francois
  • El Moussawi, Chawki
  • Tarazi, Amine

Abstract

This paper investigates the relationship between the net stable funding ratio (NSFR) and bank stability in Europe over the 2007–2022 period. By employing a two-step GMM panel model, we find a positive and significant link between the NSFR and banking stability in the European Union which is however stronger for banks located in the euro area than those in the non-euro area. Moreover, our results show that, within the euro area itself, for banks operating outside the core euro area, stronger liquidity positions do not translate into higher stability but conversely to higher instability. Overall, our findings highlight strong differences into how liquidity requirements relate to bank stability within the European union and also within the euro area itself which call for action by bank regulators.

Suggested Citation

  • Khalifeh, Imtynan & Benhmad, Francois & El Moussawi, Chawki & Tarazi, Amine, 2025. "Net stable funding ratio: Implication for Bank stability in Europe," Global Finance Journal, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:glofin:v:67:y:2025:i:c:s1044028325000717
    DOI: 10.1016/j.gfj.2025.101144
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    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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