Basel Committee on Banking Supervision Issues Final Net Stable Funding Ratio Standard
On October 31, 2014, the Basel Committee on Banking Supervision (BCBS) issued the final standard for a Net Stable Funding Ratio (NSFR) requirement. The NSFR standard will require banks to maintain stable funding profiles in relation to their on- and off-balance sheet activities (including unfunded credit and liquidity commitments in securitization transactions). BCBS initially published an NSFR proposal in 2009, included the NSFR proposal in the international liquidity standards published in December 2010 as part of the Basel III reform package (Basel III) and published a revised NSFR proposal in January 2014.
The NSFR standard is intended to complement the Liquidity Coverage Ratio (LCR) standard, which was also included as part of Basel III. The LCR standard is designed to promote the short-term resilience of a bank's liquidity risk profile by ensuring that it has sufficient high-quality liquid assets (HQLA) to survive a significant stress scenario lasting for 30 days. The NSFR standard, on the other hand, is designed to reduce funding risk over a longer term horizon by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress.
The final NSFR standard is generally consistent with the January 2014 proposal except for changes related to required stable funding for:
- Short-term exposures to banks and other financial institutions;
- Derivatives exposures; and
- Assets posted as initial margin for derivative contracts.
BCBS is still in the process of developing disclosure standards for the NSFR standard and expects to publish them later this year.
The NSFR will become a minimum standard by January 1, 2018.
For a copy of the final NSFR standard, click here.
For a copy of the BCBS press release, click here.