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The Basel III net stable funding ratio adjustment speed and systemic risk

K.C. Ly, Z. Chen, S. Wang, Y. Jiang, Kim Cuong Ly Orcid Logo

Research in International Business and Finance, Volume: 39, Pages: 169 - 182

Swansea University Author: Kim Cuong Ly Orcid Logo

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DOI (Published version): 10.1016/j.ribaf.2016.07.031

Abstract

The theory on the timing of liquidity trades highlights two contrasting rational expectations equilibria for the liquidity adjustment speed effect, namely an immediate-trading equilibrium (trade at the onset of the liquidity shock) and a delayed-trading equilibrium (trade at the last resort). Using...

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Published in: Research in International Business and Finance
ISSN: 02755319
Published: 2017
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URI: https://cronfa.swan.ac.uk/Record/cronfa31851
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first_indexed 2017-02-02T21:00:30Z
last_indexed 2019-07-23T14:51:43Z
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spelling 2019-07-23T11:26:54.5472952 v2 31851 2017-02-02 The Basel III net stable funding ratio adjustment speed and systemic risk 06f8b2f66ecfb3ec21bd129e86e3e0ea 0000-0001-5856-4560 Kim Cuong Ly Kim Cuong Ly true false 2017-02-02 BAF The theory on the timing of liquidity trades highlights two contrasting rational expectations equilibria for the liquidity adjustment speed effect, namely an immediate-trading equilibrium (trade at the onset of the liquidity shock) and a delayed-trading equilibrium (trade at the last resort). Using a partial adjustment model and an annual data sample of US bank holding companies from 1991 to 2012, we investigate the effect of Net Stable Funding Ratio (NSFR) adjustment speeds on systemic risk. We find that banks with the immediate-trading equilibrium tend to adjust the NSFR quickly in response to the Basel III liquidity requirement, thereby, reducing systemic risk. With the same level of the NSFR, our findings suggest that only the adjustment speed exerts a negative impact on systemic risk. Our evidence shows that small banks strengthen the effects of the negative impact of the NSFR adjustment speed on systemic risk. Our study sheds light on a real-time indicator of the NSFR for Basel III revisions before its implementation in 2018. Journal Article Research in International Business and Finance 39 169 182 02755319 Net Stable Funding ratio; Basel III; systemic risk; adjustment speed 31 1 2017 2017-01-31 10.1016/j.ribaf.2016.07.031 http://www.scopus.com/inward/record.url?eid=2-s2.0-84982836599&amp;partnerID=MN8TOARS COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University 2019-07-23T11:26:54.5472952 2017-02-02T16:36:47.7943643 K.C. Ly 1 Z. Chen 2 S. Wang 3 Y. Jiang 4 Kim Cuong Ly 0000-0001-5856-4560 5 0031851-02022017171409.pdf RIBF_2017_Accepted_manuscript.pdf 2017-02-02T17:14:09.2870000 Output 883508 application/pdf Accepted Manuscript true 2018-01-25T00:00:00.0000000 true
title The Basel III net stable funding ratio adjustment speed and systemic risk
spellingShingle The Basel III net stable funding ratio adjustment speed and systemic risk
Kim Cuong Ly
title_short The Basel III net stable funding ratio adjustment speed and systemic risk
title_full The Basel III net stable funding ratio adjustment speed and systemic risk
title_fullStr The Basel III net stable funding ratio adjustment speed and systemic risk
title_full_unstemmed The Basel III net stable funding ratio adjustment speed and systemic risk
title_sort The Basel III net stable funding ratio adjustment speed and systemic risk
author_id_str_mv 06f8b2f66ecfb3ec21bd129e86e3e0ea
author_id_fullname_str_mv 06f8b2f66ecfb3ec21bd129e86e3e0ea_***_Kim Cuong Ly
author Kim Cuong Ly
author2 K.C. Ly
Z. Chen
S. Wang
Y. Jiang
Kim Cuong Ly
format Journal article
container_title Research in International Business and Finance
container_volume 39
container_start_page 169
publishDate 2017
institution Swansea University
issn 02755319
doi_str_mv 10.1016/j.ribaf.2016.07.031
url http://www.scopus.com/inward/record.url?eid=2-s2.0-84982836599&amp;partnerID=MN8TOARS
document_store_str 1
active_str 0
description The theory on the timing of liquidity trades highlights two contrasting rational expectations equilibria for the liquidity adjustment speed effect, namely an immediate-trading equilibrium (trade at the onset of the liquidity shock) and a delayed-trading equilibrium (trade at the last resort). Using a partial adjustment model and an annual data sample of US bank holding companies from 1991 to 2012, we investigate the effect of Net Stable Funding Ratio (NSFR) adjustment speeds on systemic risk. We find that banks with the immediate-trading equilibrium tend to adjust the NSFR quickly in response to the Basel III liquidity requirement, thereby, reducing systemic risk. With the same level of the NSFR, our findings suggest that only the adjustment speed exerts a negative impact on systemic risk. Our evidence shows that small banks strengthen the effects of the negative impact of the NSFR adjustment speed on systemic risk. Our study sheds light on a real-time indicator of the NSFR for Basel III revisions before its implementation in 2018.
published_date 2017-01-31T03:38:56Z
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score 11.017218

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