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Net Stable Funding Ratio and Bank Profitability: What Relations?

Laura Chiaramonte
October 2015 - n. 10
Jel codes: G01, G21

This paper investigates the impact of the structural liquidity rule of Basel 3 (the so-called Net Stable Funding Ratio, Nsfr) on bank profitability, taking into account also the role of the cost of funding. The analysis focuses on a sample of commercial, cooperative and savings banks belonging to the 28 European Union countries over the period 2004- 2013. In contrast to findings of recent related studies, the results of the empirical analysis show that the compliance of the Nsfr threshold does not affect banks' profitability, especially those with small size. Indeed, the latter, being on average compliant with the structural liquidity rule, show higher profitability also due to lower cost of funding

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