Net Stable Funding Ratio (NSFR)
AdvancedAlso known as: NSFR The net stable funding ratio (NSFR) is a banking regulation requiring banks to fund their activities with enough stable sources of funding, such as long-term debt, capital and stable deposits, relative to the liquidity and maturity of their assets, over a one-year horizon. Banks traditionally borrow short-term and lend long-term. This creates risk if short-term funding suddenly disappears, as happened to some banks in 2007 and 2008. The NSFR, introduced under Basel III, aims to reduce this mismatch. The ratio compares available stable funding with required stable funding. Different types of funding are given weights based on how stable they are: capital and long-term debt count fully, retail deposits count highly and short-term wholesale funding counts little. Assets are weighted by how much stable funding they need: long-term loans need more than cash or government bonds. The NSFR must be at least 100%. For example, a bank with available stable funding of 110,000,000,000 and required stable funding of 100,000,000,000 has an NSFR of 110%. The NSFR complements the liquidity coverage ratio, which focuses on surviving a 30-day crisis, by encouraging sound funding structures over a longer period.
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