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Monday, November 3, 2014

Basel Committee Issues Net Stable Funding Ratio

The Basel Committee on Banking Supervision released the final version of its Net Stable Funding Ratio standard. The NSFR, a long-term liquidity measurement included in the Basel III liquidity standards, is a measure of structural funding designed to ensure that internationally active banks maintain a stable funding profile over time. It complements the Liquidity Coverage Ratio, a measure of cash flow over a 30-day stress period that was recently finalized by U.S. regulators.

The NSFR — intended to take effect by Jan. 1, 2018, after rulemaking in individual countries — would limit banks from relying too heavily on short-term wholesale funding for liquidity. It is calculated by dividing available stable funding by the minimum required amount of stable funding. Each subject bank’s ratio must be equal to or greater than one.

The standard details definitions and weightings for elements of both the numerator and the denominator. The definitions were calibrated to consider long-term liabilities and retail or small business deposits as more stable than short-term liabilities and wholesale funding, the Basel Committee said. A U.S. proposal to implement the standard is not expected until late 2015 or early 2016.

View the NSFR standard.
View ABA resources on liquidity.

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