Abstract
As a component of the liquidity requirements of Basel III, the Net Stable Funding Ratio (NSFR) seeks to limit the maturity transformation of banks. This paper examines whether the NSFR affects the inefficient precautionary liquidity hoarding of banks and the stability of interbank markets. Based on Acharya and Skeie (2011), the model introduces regulation into a two-period framework with asymmetric information and stochastic credit risk. As a result, due to regulatory costs, the NSFR increases the bid-ask spread on the interbank market. The effects depend strongly on the quality and the forbearance of the regulator. High-quality supervision counters the precautionary liquidity hoarding of banks resulting from asymmetric information, thereby decreasing market failure.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
