IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/107179.html
   My bibliography  Save this paper

Net stable funding ratio and profit efficiency of commercial banks in the US

Author

Listed:
  • Le, Minh
  • Hoang, Vincent
  • Wilson, Clevo
  • Managi, Shunsuke

Abstract

The net stable funding ratio (NSFR) is introduced under Basel III to promote financial stability. Under this new regulation, individual financial institutions are required to maintain a sustainable funding structure; hence this new universal requirement is expected to affect bank operation. In this paper, we provide one of the first empirical examinations of the non-linear relationship between NSFR and profit (in)efficiency for commercial banks using two data sets from Bankscope (for years from 2000 to 2015) and Federal Financial Institutions Examination Council call reports (2000-2013 period). Our results suggest that modest intensification in liquidity helps to reduce bank profit inefficiency (i.e. increase efficiency) but too much liquidity enlargement could increase the inefficiency. This result is consistent with a trade-off hypothesis on the non-linear relationship between liquidity and bank performance.

Suggested Citation

  • Le, Minh & Hoang, Vincent & Wilson, Clevo & Managi, Shunsuke, 2019. "Net stable funding ratio and profit efficiency of commercial banks in the US," MPRA Paper 107179, University Library of Munich, Germany, revised 16 May 2020.
    • Handle: RePEc:pra:mprapa:107179
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/107179/1/MPRA_paper_107179.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. J. W. B. Bos & M. Koetter, 2011. "Handling losses in translog profit models," Applied Economics, Taylor & Francis Journals, vol. 43(3), pages 307-312.
    2. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
    3. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    4. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    5. Vazquez, Francisco & Federico, Pablo, 2015. "Bank funding structures and risk: Evidence from the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 1-14.
    6. Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
    7. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    8. Curi, Claudia & Lozano-Vivas, Ana & Zelenyuk, Valentin, 2015. "Foreign bank diversification and efficiency prior to and during the financial crisis: Does one business model fit all?," Journal of Banking & Finance, Elsevier, vol. 61(S1), pages 22-35.
    9. Tsionas, Efthymios G. & Assaf, A. George & Matousek, Roman, 2015. "Dynamic technical and allocative efficiencies in European banking," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 130-139.
    10. Gaganis, Chrysovalantis & Pasiouras, Fotios, 2013. "Financial supervision regimes and bank efficiency: International evidence," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5463-5475.
    11. Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 415-432.
    12. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, September.
    13. de Haan, Leo & van den End, Jan Willem, 2013. "Bank liquidity, the maturity ladder, and regulation," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3930-3950.
    14. Koutsomanoli-Filippaki, Anastasia & Margaritis, Dimitris & Staikouras, Christos, 2009. "Efficiency and productivity growth in the banking industry of Central and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 557-567, March.
    15. Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
    16. Khan, Muhammad Saifuddin & Scheule, Harald & Wu, Eliza, 2017. "Funding liquidity and bank risk taking," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 203-216.
    17. Beccalli, Elena & Anolli, Mario & Borello, Giuliana, 2015. "Are European banks too big? Evidence on economies of scale," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 232-246.
    18. Gavalas, Dimitris, 2015. "How do banks perform under Basel III? Tracing lending rates and loan quantity," Journal of Economics and Business, Elsevier, vol. 81(C), pages 21-37.
    19. Cai, Khoa & Le, Minh & Vo, Hong, 2019. "The cost of being safer in banking: Market power loss," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 116-130.
    20. Thanassoulis, E. & Boussofiane, A. & Dyson, R. G., 1996. "A comparison of data envelopment analysis and ratio analysis as tools for performance assessment," Omega, Elsevier, vol. 24(3), pages 229-244, June.
    21. Flannery, Mark J, 1994. "Debt Maturity and the Deadweight Cost of Leverage: Optimally Financing Banking Firms," American Economic Review, American Economic Association, vol. 84(1), pages 320-331, March.
    22. Wu, Po-Chin & Liu, Shiao-Yen & Zhai, Rui-Xiang, 2018. "Nonlinear impacts of operating risk and demand management policy on banks’ performance: The role of leading indicator," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 40-53.
    23. John Goddard & Hong Liu & Phil Molyneux & John O.S. Wilson, 2013. "Do Bank Profits Converge?," European Financial Management, European Financial Management Association, vol. 19(2), pages 345-365, March.
    24. Luo, Yun & Tanna, Sailesh & De Vita, Glauco, 2016. "Financial openness, risk and bank efficiency: Cross-country evidence," Journal of Financial Stability, Elsevier, vol. 24(C), pages 132-148.
    25. Ta‐Cheng Chang & Yung‐Ho Chiu, 2006. "Affecting Factors On Risk‐Adjusted Efficiency In Taiwan'S Banking Industry," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 634-648, October.
    26. Molyneux, Philip & Thornton, John, 1992. "Determinants of European bank profitability: A note," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1173-1178, December.
    27. Elsas, Ralf & Hackethal, Andreas & Holzhäuser, Markus, 2010. "The anatomy of bank diversification," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1274-1287, June.
    28. Schmaltz, Christian & Pokutta, Sebastian & Heidorn, Thomas & Andrae, Silvio, 2014. "How to make regulators and shareholders happy under Basel III," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 311-325.
    29. Halkos, George & Petrou, Kleoniki Natalia, 2019. "Treating undesirable outputs in DEA: A critical review," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 97-104.
    30. Delis, Manthos D. & Hasan, Iftekhar & Tsionas, Efthymios G., 2014. "The risk of financial intermediaries," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 1-12.
    31. Fiordelisi, Franco & Marques-Ibanez, David & Molyneux, Phil, 2011. "Efficiency and risk in European banking," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1315-1326, May.
    32. repec:zbw:bofrdp:2014_018 is not listed on IDEAS
    33. Dietrich, Andreas & Hess, Kurt & Wanzenried, Gabrielle, 2014. "The good and bad news about the new liquidity rules of Basel III in Western European countries," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 13-25.
    34. E. Mamatzakis, 2015. "Risk and efficiency in the Central and Eastern European banking industry under quantile analysis," Quantitative Finance, Taylor & Francis Journals, vol. 15(3), pages 553-567, March.
    35. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
    36. Dietrich, Andreas & Wanzenried, Gabrielle, 2011. "Determinants of bank profitability before and during the crisis: Evidence from Switzerland," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(3), pages 307-327, July.
    37. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    38. Huang, Tai-Hsin & Chiang, Dien-Lin & Tsai, Chao-Min, 2015. "Applying the New Metafrontier Directional Distance Function to Compare Banking Efficiencies in Central and Eastern European Countries," Economic Modelling, Elsevier, vol. 44(C), pages 188-199.
    39. Hans Degryse & Sanja Jakovljević & Steven Ongena, 2015. "A Review of Empirical Research on the Design and Impact of Regulation in the Banking Sector," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 423-443, December.
    40. King, Michael R., 2013. "The Basel III Net Stable Funding Ratio and bank net interest margins," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4144-4156.
    41. DeYoung, Robert & Jang, Karen Y., 2016. "Do banks actively manage their liquidity?," Journal of Banking & Finance, Elsevier, vol. 66(C), pages 143-161.
    42. Viral V. Acharya & Nada Mora, 2015. "A Crisis of Banks as Liquidity Providers," Journal of Finance, American Finance Association, vol. 70(1), pages 1-43, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ramlall, Indranarain, 2022. "Does geographical proximity matter in determining the profitability of banks?," Journal of Policy Modeling, Elsevier, vol. 44(6), pages 1251-1279.
    2. Bingbing Shen & Aleksandr Aleksandrovich Perfilev & Lidiya Pavlovna Bufetova & Xueyan Li, 2023. "Bank Profitability Analysis in China: Stochastic Frontier Approach," JRFM, MDPI, vol. 16(4), pages 1-20, April.
    3. Adeyemo, Remi & Kehinde, Ayodeji Damilola & Gbadebori, Nafisat Oluwatayo, 2023. "The Profit Efficiency Of Moringa Oleifera Production In Osun State, Nigeria," APSTRACT: Applied Studies in Agribusiness and Commerce, AGRIMBA, vol. 17(2), December.
    4. Nguyen, Thanh & Nghiem, Son & Bhati, Abhishek Singh, 2024. "Risk-adjusted efficiency and innovation: an examination of systematic difference and convergence among BRIC banks," Economic Systems, Elsevier, vol. 48(1).
    5. Bowo Setiyono & Ahmad Maulin Naufa, 2020. "The Impact Of Net Stable Funding Ratio On Bank Performance And Risk Around The World," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(4), pages 543-564, December.
    6. Dania AL-Najjar & Hamzeh F Assous, 2021. "Key determinants of deposits volume using CAMEL rating system: The case of Saudi banks," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-15, December.
    7. Carmelo Algeri & Luc Anselin & Antonio Fabio Forgione & Carlo Migliardo, 2022. "Spatial dependence in the technical efficiency of local banks," Papers in Regional Science, Wiley Blackwell, vol. 101(3), pages 685-716, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2017. "Do creditor rights and information sharing affect the performance of foreign banks?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 13-35.
    2. Francesca Pampurini & Anna Grazia Quaranta, 2018. "Sustainability and Efficiency of the European Banking Market after the Global Crisis: The Impact of Some Strategic Choices," Sustainability, MDPI, vol. 10(7), pages 1-16, June.
    3. Cai, Khoa & Le, Minh & Vo, Hong, 2019. "The cost of being safer in banking: Market power loss," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 116-130.
    4. Iosifidi, Maria & Panopoulou, Ekaterini & Tsoumas, Chris, 2021. "Mortgage loan demand and banks’ operational efficiency," Journal of Financial Stability, Elsevier, vol. 53(C).
    5. Gaganis, Chrysovalantis & Pasiouras, Fotios, 2013. "Financial supervision regimes and bank efficiency: International evidence," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5463-5475.
    6. Jeon, Bang Nam & Wu, Ji & Chen, Limei & Chen, Minghua, 2020. "Diversification, efficiency and risk of banks: New consolidating evidence from emerging economies," School of Economics Working Paper Series 2020-10, LeBow College of Business, Drexel University.
    7. Carmelo Algeri & Luc Anselin & Antonio Fabio Forgione & Carlo Migliardo, 2022. "Spatial dependence in the technical efficiency of local banks," Papers in Regional Science, Wiley Blackwell, vol. 101(3), pages 685-716, June.
    8. Safiullah, Md, 2020. "Bank governance and crisis-period efficiency: A multinational study on Islamic and conventional banks," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    9. Ly, Kim Cuong & Shimizu, Katsutoshi, 2018. "Funding liquidity risk and internal markets in multi-bank holding companies: Diversification or internalization?," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 77-89.
    10. Luo, Yun & Tanna, Sailesh & De Vita, Glauco, 2016. "Financial openness, risk and bank efficiency: Cross-country evidence," Journal of Financial Stability, Elsevier, vol. 24(C), pages 132-148.
    11. Chrysovalantis Gaganis & Emilios Galariotis & Fotios Pasiouras & Christos Staikouras, 2021. "Macroprudential regulations and bank profit efficiency: international evidence," Journal of Regulatory Economics, Springer, vol. 59(2), pages 136-160, April.
    12. Muhammad Saifuddin Khan, 2018. "The Role of Liquidity in Financial Intermediation," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2018, January-A.
    13. Nguyen, Thi Lam Anh, 2018. "Diversification and bank efficiency in six ASEAN countries," Global Finance Journal, Elsevier, vol. 37(C), pages 57-78.
    14. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    15. Delis, Manthos D. & Iosifidi, Maria & Tsionas, Mike, 2020. "Management estimation in banking," European Journal of Operational Research, Elsevier, vol. 284(1), pages 355-372.
    16. Malgorzata Anna Olszak & Patrycja Chodnicka, 2014. "Do institutional and political factors matter for the efficiency of banking sectors?," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(1), pages 40-58, May.
    17. Gaganis, Chrysovalantis & Galariotis, Emilios & Pasiouras, Fotios & Staikouras, Christos, 2020. "Bank profit efficiency and financial consumer protection policies," Journal of Business Research, Elsevier, vol. 118(C), pages 98-116.
    18. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    19. Agostino, Mariarosaria & Ruberto, Sabrina & Trivieri, Francesco, 2023. "The role of local institutions in cooperative banks’ efficiency. The case of Italy," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 84-103.
    20. Salma Louati & Younes Boujelbene, 2021. "Basel Regulations and Banks’ Risk-efficiency Nexus: Evidence from Dynamic Simultaneous-equation Models," Journal of African Business, Taylor & Francis Journals, vol. 22(4), pages 578-602, October.

    More about this item

    Keywords

    NSFR; liquidity; profit inefficiency;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:107179. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.