Basel III Releases Final Standard On Net Stable Funding Ratio

Basel

On October 31, the Basel III Committee on Banking Supervision released its final standard for the net stable funding ratio (NSFR), which requires that banks maintain stable funding sources to mitigate liquidity risk. The standard will complement the liquidity coverage ratio finalized earlier this year. The NSFR will ensure banks have enough cash or assets that can reliably be converted into cash to cover their expected outflows on a one-year horizon. In 2010, the Basel III Committee established a rigorous review process of the financial market and economy, and revised that standard in January 2014 to “focus on the riskier types of funding profile employed by banks while improving alignment with the LCR and reducing cliff effects in the measurement of available and required stable funding.” The most recent revisions cover the required stable funding for: (i) short-term exposures to financial institutions, including but not limited to banks; (ii) derivatives exposures; and (iii) assets posted as initial margin for derivatives contracts. The NSFR will become a minimum standard by January 1, 2018.