Basel III's "Net Stable Funding Ratio" (NSFR) complements the Liquidity Coverage Ratio (LCR) by providing a longer-term (i.e. 1-year, compared to 30-days) measure of stable funding, requiring that banks hold at least a 100% ratio of "available stable funding" (ASF) compared to the amount of "required stable funding" (RSF) (contrast this with the LCR's requirement that banks hold sufficient High Quality Liquid Assets (HQLA) equal to their potential losses, to allow them to survive a 30-day stress scenario). The NSFR is intended to reduce funding risk, limit overreliance on short-term wholesale funding, encourage better assessments of funding risks, and promote funding stability. With the NSFR not due to be introduced as a minimum standard until 2018, the Basel Committee has until now been focusing on finalising other aspects of the framework. However, this Consultative Document now sets out the Basel Committee's proposals for the definition and calibration of the NSFR. The ASF element of the calculation will be reached by assigning the "carrying value" of a banks' capital and liabilities to one of five categories (determined by reference to the application of a percentage 'ASF factor' - i.e. each set of liabilities receive an ASF factor of 100% (e.g. regulatory capital), 95% (e.g. stable demand deposits), 90% (e.g. less stable demand deposits), 50% (e.g. operational deposits) or 0% (e.g. liabilities with no stated maturity), based on their perceived stability), and the total ASF is the sum of the weighted amounts. The RSF amount is similarly calculated, by assigning the carrying value of a banks' assets to 7 categories determined by reference to the application of a percentage 'RSF factor' which is then added to the amount of off-balance sheet activity. The 7 RSF factors incorporate some definitions from the LCR, and range from 0% (e.g. coins and banknotes), 5% (unencumbered Level 1 LCR assets), 15% (unencumbered Level 2A LCR assets), 50% (e.g. LCR Level 2B assets, including RMBS subject to the LCR's conditions), 65% (e.g. residential mortgages with a maturity of over 1 year and that qualify for a 35% risk weight under the Basel Standardised Approach), 85% (e.g. unencumbered performing loans that do not qualify for a 35% risk weight under the Standardised Approach), to 100% (e.g. all assets that are encumbered for over one year). Off-balance sheet items are assigned an RSF factor of 5% of the currently undrawn portion. Comments on the Consultative Document are requested by 11 April 2014.
Basel Committee Consultative Document