On November 3, the Basel Committee on Banking Supervision issued its final version of the Net Stable Funding Ration (NSFR) standard, which can be found here. The NSFR is a long-term liquidity standard that measures the structural funding designed to ensure that internationally active banks maintain a stable funding profile. It is included in the Basel III liquidity standards and acts in cooperation with the Liquidity Coverage Ratio (LCR), which measures cash flow over a 30-day stress period. The LCR was recently finalized by United States regulators.
The NSFR takes effect on January 1, 2018, and seeks to restrict banks from relying heavily on short-term wholesale funding for liquidity. NSFR is calculated by dividing available stable funding by the minimum required amount of stable funding. The bank’s ratio is required to be equal to or greater than one.
The Basel Committee’s standard contains definitions and weightings for elements of both the numerator and the denominator. They were calibrated to consider long-term liabilities and retail or small business deposits as being more stable than wholesale funding and short-term liabilities. A U.S. proposal to implement the standard is not expected until late 2015 or early 2016.