The Net Stable Funding Ratio and banksï¿½ participation in monetary policy operations: some evidence for the euro area
Based on a review of the analytical underpinnings of the effects of the NSFR on banksï¿½ choices, this paper attempts to relate banksï¿½ strategies to developments in the value of the ratio in the euro area. In spite of a not-so-near implementation date, the evidence is that the NSFR already matters for banksï¿½ choices, and it might be more relevant as a decision variable than alternative leverage indicators. As part of a convergence process towards the 100 per cent threshold, we estimate that the ECBï¿½s 3-year LTROs have raised the available stable funding by ï¿½429 billion as of June 2012 for the sample banks with a shortfall and that the NSFR may affect loans to the economy. In view of the phasing-in of the Basel III liquidity standards, the evidence suggests that, when evaluating non-standard monetary policy measures, central banks should also take into account their impact on the fulfilment of the NSFR and the possible cliff effects related to their expiration.
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