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The Determinants of Structural Liquidity in Brazil: what to expect for the NSFR?

Author

Listed:
  • Yure Lage Nuic
  • Cleysson Ribeiro Vieira
  • Marcos Soares da Silva

Abstract

This paper empirically investigates the main determinant factors of the new prudential liquidity requirement, the Net Stable Funding Ratio (NSFR), and assesses the possible impacts of its implementation on the Brazilian banking system. To this end, a dynamic panel of 131 financial institutions was estimated for the period between 2008 and 2014. The results indicate that the cost of adjusting the structural liquidity of Brazilian banks is relatively moderate, requiring about eight quarters for a complete absorption of an exogenous shock. Additionally, the results do not indicate that the NSFR has a negative impact on banks’ profitability, as measured by the adjusted return on average assets (ROAA). This suggests a compatibility between lower structural liquidity risk and higher profitability in the long run. Finally, the NSFR presented itself countercyclical, showing its ability to mitigate excessive growth of banking operations during the phase of economic expansion, contributing to the stability of the financial system.

Suggested Citation

  • Yure Lage Nuic & Cleysson Ribeiro Vieira & Marcos Soares da Silva, 2016. "The Determinants of Structural Liquidity in Brazil: what to expect for the NSFR?," Working Papers Series 443, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:443
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps443.pdf
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    References listed on IDEAS

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