The Net Stable Funding Ratio and banks� participation in monetary policy operations: some evidence for the euro area

Based on a review of the analytical underpinnings of the effects of the NSFR on banks� choices, this paper attempts to relate banks� strategies to developments in the value of the ratio in the euro area. In spite of a not-so-near implementation date, the evidence is that the NSFR already matters for banks� choices, and it might be more relevant as a decision variable than alternative leverage indicators. As part of a convergence process towards the 100 per cent threshold, we estimate that the ECB�s 3-year LTROs have raised the available stable funding by �429 billion as of June 2012 for the sample banks with a shortfall and that the NSFR may affect loans to the economy. In view of the phasing-in of the Basel III liquidity standards, the evidence suggests that, when evaluating non-standard monetary policy measures, central banks should also take into account their impact on the fulfilment of the NSFR and the possible cliff effects related to their expiration.