The Basel III Net Stable Funding Ratio and Bank Net Interest Margins

Authors

Michael R. King, Ivey Business School

Document Type

Article

Publication Date

11-2013

Volume

37

Issue

11

Journal

Journal of Banking & Finance

First Page

4144

URL with Digital Object Identifier

https://doi.org/10.1016/j.jbankfin.2013.07.017

Last Page

4156

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 costeffective 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 to 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.

Notes

This is the author-accepted version of an article published in the Journal of Banking and Finance. The final published version can be found at https://doi.org/10.1016/j.jbankfin.2013.07.017

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