The Assessment of the Net Stable Funding Ratio (NSFR) Value. Evidence from the Financial Crisis

Based on a sample of top-tier international banks, this paper examines the main factors that determine the bank performance and more specifically investigates whether the new structural liquidity measure, the Net Stable Funding Ratio (NSFR), is a key determinant of ROA and ROE. The analysis encompasses two time periods: a pre-crisis period (2003-2006) and a crisis and post-crisis period (2007-2010) and focuses on bank-specific characteristics as well as macroeconomic and industry-specific factors. The results of the empirical analysis indicate that the NSFR becomes significant only during only the crisis and post-crisis period and it is positively related to bank performance. This finding shows that, during the crisis and post-crisis period, banks characterized by values of NSFR below the threshold of 100% are perceived by supervisors as having a less solid capital structure, lower rating and higher overall funding costs. Hence, the impact of the new structural liquidity ratio on bank performance is positive.