The NSFR is a key component of the Basel III reforms to promote a more resilient banking sector. It will require that banks maintain a stable funding profile in relation to their on- and off-balance sheet activities. A robust funding structure makes it less likely that disruptions to a bank's regular funding sources will erode its liquidity position in a way that would increase the risk of its failure and, potentially, lead to broader systemic stress. In particular, the NSFR limits over-reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability.
Proposals on the NSFR were first published in 2009, and the measure was included in the December 2010 Basel III agreement. At that time, the Committee put in place a rigorous process to review the standard and its implications for financial market functioning and the economy.
The main revisions to the NSFR seek to reduce cliff effects within the measurement of funding stability, improve its alignment with the Liquidity Coverage Ratio (LCR), and alter its calibration to focus greater attention on short-term, potentially volatile funding sources.
Stefan Ingves, Chairman of the Basel Committee and Governor, Sveriges Riksbank, said: "The Net Stable Funding Ratio is central to the Basel III framework. The changes proposed today will help to identify less stable funding structures and - without unduly hampering banks in their traditional role of maturity transformation - encourage them to develop more robust funding profiles."
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Press release
Net Stable Funding Ratio - consultative document
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