Basel Committee Publishes Final Net Stable Funding Ratio Disclosure Standards
Last week, the Basel Committee on Banking Supervision (the “Basel Committee”) published final standards (the “Final Disclosure Standards”) for the disclosure of information relating to banks’ net stable funding ratio (the “NSFR”) calculations.1 The Final Disclosure Standards were adopted substantially as proposed in December 2014.2
The NSFR, which the Basel Committee adopted in final form in October 2014,3 is one of the key standards, along with the liquidity coverage ratio (the “LCR”),4 introduced by the Basel Committee to strengthen liquidity risk management as part of the Basel III framework. The NSFR is designed to promote more medium- and long-term funding of the assets and activities of banks over a one-year time horizon. The Final Disclosure Standards, in turn, are part of the broader so-called Pillar 3 disclosure regime (along with disclosure requirements in capital rules as well as the LCR-related disclosure framework) and are designed to “improve the transparency of regulatory funding . . . , enhance market discipline, and reduce uncertainty in the markets as the NSFR is implemented.”5
Scope of Applicability
Subject to national implementation, the Final Disclosure Standards are applicable to all internationally active banks on a consolidated basis; however, national supervisors may choose to apply them to other banks and to any subset of entities of internationally active banks to ensure greater regulatory consistency between domestic and foreign banking institutions.
National supervisors are expected to give effect to the Final Disclosure Standards, and banks will be required to comply with them, from the date of the first reporting period after January 1, 2018.
The Final Disclosure Standards establish a common template (the “NSFR Template”) for internationally active banks to publish, on a consolidated basis, the components of their available stable funding (“ASF”) and required stable funding (“RSF”) calculations, which form the basis for their NSFRs as the ratio of ASF over RSF. NSFR data is to be published on a quarter-end basis.
To complement disclosures in the NSFR Template, banks subject to the Final Disclosure Standards also are expected to provide a qualitative description of the NSFR results and underlying data, including, as appropriate, discussions of the reasons for changes in the bank’s NSFR results within a reporting period or across reporting periods and the composition of the bank’s interdependent assets and liabilities (as defined in the NSFR Release).6 This is similar to the qualitative disclosure required by the Basel Committee’s LCR framework.
Timing and Placement of Disclosure
Banks subject to the Final Disclosure Standards will be required to publish their required disclosures “with the same frequency as, and concurrently with, the publication of their financial statements,” whether audited or unaudited, which, for U.S. institutions, implies quarterly disclosure. The disclosures will be required to be included in banks’ published financial reports, in publicly available regulatory reports, or via a “direct and prominent link” on their websites. Affected banks also will be required to make available on their websites, or through publicly available regulatory reports, an archive (for a retention period as determined by the relevant supervisors) of NSFR disclosures for prior reporting periods.7
The U.S. federal banking agencies (the “Agencies”) have not yet issued a proposed rule implementing the NSFR or indicated which U.S. banking organizations will be made subject to the NSFR. It remains to be seen whether the Agencies will implement a version of the NSFR in the U.S. that is more stringent than the internationally agreed-upon Final NSFR – so-called “super-equivalence” in Agency parlance – as was the case with the Agencies’ implementation of the LCR.