The impact of net stable funding ratio on bank performance and risk around the world

This study examines whether liquidity, as measured by net stable funding ratio (NSFR), impacts bank performance and risk. Based on an annual panel data set consisting of 2,909 banks from 127 countries, we find that NSFR reduces both performance and risk. These results are uniquely different in the robustness analysis under various settings (non-linear relationships, high versus low NSFR, and conventional versus Islamic banks). Overall, NSFR implementation brings benefits in the form of risk reduction rather than performance improvement to banks around the world.