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How Does the NSFR Regulatory Constraint Affect Profitability and Lending? Evidence From EU Banks
Agnese, Paolo Delle Foglie, Andrea Porretta, Pasqualina Santoboni, Fabrizio
Agnese, Paolo
Porretta, Pasqualina
Santoboni, Fabrizio
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Abstract
This paper analyzes the relationship between long-term liquidity regulatory constraints, profitability, and lending activities in the EU banking sector. In particular, we examine how Net Stable Funding Ratio (NSFR) liquidity requirements impact the profitability and the core banking activities of 187 banks. Our findings reveal that higher NSFR levels improve profitability and asset quality over time rather than immediately. Additionally, NSFR supports loan growth, highlighting the duality of the Basel III liquidity requirement as a prudential constraint and a performance driver. This study highlights that well-calibrated liquidity regulations can strengthen the financial system while ensuring a stable credit supply.
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Date
2025
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Keywords
Banks, Lending activity, Liquidity risk, NSFR, Profitability
Citation
Agnese, Paolo, Andrea Delle Foglie, Pasqualina Porretta, and Fabrizio Santoboni. “How Does the NSFR Regulatory Constraint Affect Profitability and Lending? Evidence From EU Banks.” European Financial Management. 2025.
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Attribution 4.0 International