NSFR

Net Stable Funding Ratio (NSFR) is a Basel III liquidity standard designed to promote funding stability over a one-year horizon. It requires banks to maintain a sufficient amount of stable funding to support their activities, by ensuring that available stable funding (ASF) over the year is at least equal to the required stable funding (RSF). The ratio must be at least 100 percent.

NSFR complements the Liquidity Coverage Ratio (LCR) by focusing on long-term funding rather than short-term liquidity buffers. It is intended to reduce the risk that a bank runs into funding difficulties during periods of stress and to discourage excessive reliance on short-term wholesale funding.

Calculation and components: NSFR equals ASF divided by RSF. Available stable funding includes capital, long-term funding sources, and liabilities deemed stable, such as retail and some core deposits. Required stable funding reflects the liquidity characteristics of assets and off-balance-sheet exposures; assets and exposures are assigned RSF weights based on their stability and liquidity risk. In practice, different asset types and off-balance sheet commitments are assigned factors that translate into RSF, while funding sources are assigned ASF weights.

Implementation: The NSFR is a global Basel III standard that has been adopted by many jurisdictions with a minimum requirement of 100 percent. Implementation timelines vary by country, with many jurisdictions phasing in or finalizing rules during the mid-to-late 2010s and into the 2020s. The standard applies to banks and some bank-like financial institutions.

Impact and critique: The NSFR aims to reduce funding fragility and improve resilience to stressed funding conditions, but it increases regulatory complexity and operational burden, particularly for institutions with large holdings of short-term wholesale funding or thinner retail funding bases. Critics note transitional costs and potential constraints on profitable funding strategies.