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Commercial bank NSFR adjustment and risk: Evidence from China

Author

Listed:
  • Li, Minghui
  • Li, Kaiyue
  • Huang, Yeni
  • Cao, Zhongyu

Abstract

The net stable funding ratio (NSFR) is a critical monitoring indicator of bank liquidity risk introduced under the Basel III accord in 2009. This study used the partial adjustment model to analyze the NSFR adjustment behavior of Chinese commercial banks, leading to the following four findings. First, banks have been undertaking active liquidity adjustment while exceeding global and Chinese minimum standards. Second, the NSFR’s target level and adjustment speed are significantly higher than those of foreign banks. Third, the target NSFR gap is essential to the NSFR’s positive adjustment. Fourth, a higher target level and steady adjustment speed help reduce loss from systemic risk. This paper suggests establishing three liquidity risk firewalls, providing an essential reference for understanding NSFR adjustment in Chinese commercial banks. The study also provides practical significance for policy-level assessments regarding the impact of implementing NSFR supervision and establishing liquidity risk firewalls.

Suggested Citation

  • Li, Minghui & Li, Kaiyue & Huang, Yeni & Cao, Zhongyu, 2025. "Commercial bank NSFR adjustment and risk: Evidence from China," Research in International Business and Finance, Elsevier, vol. 73(PA).
    • Handle: RePEc:eee:riibaf:v:73:y:2025:i:pa:s0275531924003520
    DOI: 10.1016/j.ribaf.2024.102559
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    More about this item

    Keywords

    Net stable funding ratio; Partial adjustment model; Firewall of risk prevention;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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