The Impacts Of NET Stable Funding Ratio Requirement On Risk-taking And Performance Of Commercial Banks

Liquidity risk regulation and supervision has become tougher and become one of the most important contents of financial regulatory reform in many countries after the financial crisis.In particular,financial institutions are facing more intrusive supervision from regulatory authorities,tougher liquidity requirements and restrictions on investing.In December 2010,the Basel Committee on Banking Supervision(BCBS)announced a package of reforms known as Basel III to address the vulnerabilities exposed by the crisis.Two of the most controversial elements are the new liquidity requirements,namely the Liquidity Coverage Ratio(LCR)and the Net Stable Funding Ratio(NSFR).This establishes a new global unified combination of short-term and long-term liquidity risk supervision standard,which reflects the emphasis on liquidity regulations.With the deepening of the reform of our banking industry and speeding up of marketization of interest rate,bank's financing products are mainly focused on short term portfolios.In the meantime,commercial banks tend to use their funds to invest in government projects and long-term real estate projects.The problem of term structure mismatch in the assets-liability management of China's commercial banks is becoming more and more serious.The pressure of liquidity risk regulation and supervision rises in China.In order to ward off systematic liquidity risks under the situation,China Banking Regulatory Commission(CBRC)has brought LCR and NSFR into CARPALS index system from 2010,and formally puts forward four liquidity risk regulatory indicators,including NSFR.Under this background,based on the final revised version of Net Stable Funding Ratio issued by BCBS in 2014,this paper firstly estimates NSFR by using an unbalanced panel data of China's banking industry from 2003 to 2014,then analyzes how Net Stable Funding Ratio will influence bank risk-taking and bank performance,and whether differences between national commercial banks and regional commercial banks exist in those influences.Empirical results show that:the average NSFR amounts to about 150%,which is significantly lower than the optimal level.NSFR discourages the risk-taking of banks and has an inverted U-shape relationship with bank performance.However,introducing NSFR has significant influences on regional commercial bank rather than national banks.Overall,enhancing liquidity risk regulation will contribute to discouraging bank risk-taking and stimulating bank performance.But different supervisory measures should be taken according to different types of commercial banks.The contributions of this study are mainly reflected in the following two aspects.Firstly,based on the final revised version of NSFR issued by BCBS in October 2014,this paper estimates NSFR of China's commercial banks.Secondly,using an dynamic panel data model,this paper analyzes how NSFR will influence bank performance and bank risk-taking and whether differences between national commercial banks and regional commercial banks exist in those influences.Overall,the findings of this paper provide broad support to liquidity risk supervision and empirical evidence from the perspective of macro-prudential regulation.