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

The net stable funding ratio (NSFR) was introduced under the Basel III accord to promote financial stability. Under this new international regulation, individual financial institutions are required to maintain a sustainable funding structure. Hence this new universal requirement is expected to materially affect bank operations. In this paper, we provide one of the first empirical examinations of the non-linear impact of the NSFR on profit (in)efficiency for commercial banks using two data sets from Bankscope (from 2000 to 2015) and the Federal Financial Institutions Examination Council call reports (between 2000–2013). Our results suggest that modest intensification in liquidity helps to reduce bank profit inefficiency (i.e. increase efficiency) but a too greater liquidity enlargement could increase inefficiency.