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Regulatory Updates
In October 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 NSFR will become a minimum standard by January 1, 2018. Member nations are in the process of implementing NSFR regulations in their jurisdictions.
Regulatory Materials
- Basel III: The Final Net Stable Funding Ratio - October 2014
- Basel III: The Proposed Net Stable Funding Ratio - January 2014
