Net stable funding ratio

The net stable funding ratio has been proposed within Basel III, the new set of capital and liquidity requirements for banks, which will over time replace Basel II.[2] Basel III has been prepared within the Basel Committee on Banking Supervision of the Bank for International Settlements.[3] Various components of Basel III are being implemented in different jurisdictions and Basel committee reports progress on the state of implementation through its Regulatory Consistency Assessment Programme ("RCAP") which is published on a semi-annual basis.

Net Stable Funding ratio seeks to calculate the proportion of Available Stable Funding ("ASF") via the liabilities over Required Stable Funding ("RSF") for the assets.

• Sources of Available Stable funding includes: customer deposits, long-term wholesale funding (from the interbank lending market), and equity.
• "Stable funding" excludes short-term wholesale funding (also from the interbank lending market).

These components of stable funding are not equally weighted: see page 21 and 22 of the Consultative Document dated December 2009 for the detailed weights.[4]

Some of the weights for longer term or "structural term assets" are as follows(these are outdated pls refer to latest BIS paper of 2014)

• 100% of loans longer than one year;
• 85% of loans to retail clients with a remaining life shorter than one year;
• 50% of loans to corporate clients with a remaining life shorter than one year;
• 20% of government and corporate bonds.
• Off-balance sheet categories

The consultative document will be amended.[5]

${\displaystyle {\text{NSFR}}={\frac {\mbox{Available amount of stable funding}}{\mbox{Required amount of stable funding }}}>100\%}$

As the Basel Committee on Banking Supervision (BCBS) does not have the power to issue legally binding regulation,[6] the Basel III standards have to be implemented by national authorities. Consequently, there are differences among countries with respect to both content and timing.

The NSFR has become a minimum standard by 1 January 2018. However, implementation has been delayed in many countries. Less than half of the G20 members had implemented the rules by 2018. Among those that lag behind are the US, the EU, Switzerland and Japan. The compliant countries include Australia, Brazil, China, Indonesia and Russia. [7]

Over time NSFR calibration will be reviewed as proposals are developed and industry standards implemented.[8]

As mentioned above, off-balance sheet categories are also weighted as they contribute to both the assets and liabilities. This is best explained by the potential for contingent calls on funding liquidity (revocable and irrevocable line of credit and liquidity facilities to clients). Therefore, once the standard is in place, off-balance sheet commitments will need to be funded, with the stable funding.

This may help prevent the excessive use of the shadow banking system, including special purpose entity and structured investment vehicle, as these conduits often benefit from liquidity facilities (so-called back-stop facilities) granted by the bank which created them.

• "FSA and the Net Stable Funding Ratio" 17 March 2010