The Good and Bad News about the New Liquidity Rules of Basel III in Western European Countries

47 Pages Posted: 1 Sep 2012 Last revised: 24 Jun 2013

See all articles by Andreas Dietrich

Andreas Dietrich

Lucerne University of Applied Sciences and Arts

Gabrielle Wanzenried

Lucerne University of Applied Sciences and Arts, Institute of Financial Services Zug IFZ

Kurt Hess

Independent Credit View

Date Written: August 31, 2012

Abstract

New liquidity rules phased in under Basel III define the new net stable funding ratio (NSFR) to promote sustainable funding structures at financial institutions. In this paper we analyze characteristics and drivers of NSFR for a sample of 921 Western European banks between 1996 and 2010. We find that a majority of banks have historically not fulfilled NSFR minimum requirements, in particular larger and faster growing institutions as well as banks also active in asset management and investment banking. Many of them have started increasing NSFR with the onset of financial crisis 2008 while this ratio had been sliding in earlier years. Interestingly, potential advantages in funding costs for low NSFR banks do not seem to translate into higher profitability and results of these banks are more volatile.

Keywords: Banking Regulation, Financial Stability, Net Stable Funding Ratio, Liquidity Ratio, Basel III

JEL Classification: G21, G28, G38

Suggested Citation

Dietrich, Andreas and Wanzenried, Gabrielle and Hess, Kurt, The Good and Bad News about the New Liquidity Rules of Basel III in Western European Countries (August 31, 2012). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2139380 or http://dx.doi.org/10.2139/ssrn.2139380

Andreas Dietrich (Contact Author)

Lucerne University of Applied Sciences and Arts ( email )

IFZ Institute of Financial Services Zug
P.O. Box 4332
Zug, CH-6304
Switzerland

Gabrielle Wanzenried

Lucerne University of Applied Sciences and Arts, Institute of Financial Services Zug IFZ ( email )

IFZ Institute of Financial Services Zug
P.O. Box 4332
Zug, CH-6304
Switzerland
+4141757 67 37 (Phone)
+4141757 67 00 (Fax)

HOME PAGE: http://www.ifz.ch

Kurt Hess

Independent Credit View ( email )

Schweizergasse 21
Zürich, 8001
Switzerland

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