The article “RBI proposes net stable funding ratio for banks under Basel-III” published in the Financial Express presents key terms and information pertaining to NSFR.
The net stable funding ratio (NSFR) is one of the Basel’s committee key reforms to reduce funding risk over a longer time horizon by requiring banks tofund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress.
The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.
The amount of available stable funding is calculated as sum of multiplying weights (ASF factor) to different categories of liability and the amount of required stable funding is calculated as sum of multiplying weights (RSF factor) to institutions assets and off-balance sheet items.
Stable funding is defined as those types and amounts of equity and liability financing which are expected to be reliable sources of funds over 1-year under conditions of extended stress.
The NSFR should be equal to at least 100% and will become a minimum standard by 1 January 2018.
Available stable funding (ASF)
|100%||Total regulatory capital (excluding Tier 2 instruments with residual maturity of <1 year)
Other capital instruments and liabilities with effective residual maturity of >1 year
|95%||Stable non-maturity (demand) deposits and term deposits with residual maturity of <1 year provided by retail and small business customers|
|90%||Less stable non-maturity deposits and term deposits with residual maturity of <1 year provided by retail and small business customers|
Funding with residual maturity of <1 year provided by non-financial corporate customers
Funding with residual maturity of <1 year from sovereigns, Public sector enterprises, and multilateral and national development banks
Other funding with residual maturity between 6 months and <1 year not included in the above categories, including funding provided by central banks and financial institutions
All other liabilities and equity not included in the above categories, including liabilities without a stated maturity (with a specific treatment for deferred tax liabilities and minority interests)
NSFR derivative liabilities net of NSFR derivative assets if NSFR derivative liabilities are greater than NSFR derivative assets
“Trade date” payables arising from purchases of financial instruments, foreign currencies and commodities
Required stable funding (RSF)
|0%||Coins and banknotes
All central bank reserves
All claims on central banks with residual maturities of <6 months
“Trade date” receivables arising from sales of financial instruments, foreign currencies and commodities.
|5%||Unencumbered Level 1 assets, excluding coins, banknotes and central bank reserves|
|10%||Unencumbered loans to financial institutions with residual maturities of less than six months, where the loan is secured against Level 1 assets, and where the bank has the ability to freely rehypothecate the received collateral for the life of the loan|
|15%||All other unencumbered loans to financial institutions with residual maturities of less than six months not included in the above categories
Unencumbered Level 2A assets
|50%||Unencumbered Level 2B assets
HQLA encumbered for a period of >6 months and <1 year
Loans to financial institutions and central banks with residual maturities between 6 months and <1 year
Deposits held at other financial institutions for operational purposes
All other assets not included in the above categories with residual maturity of <1 year, including loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns and PSEs
|65%||Unencumbered residential mortgages with a residual maturity of >1 year and with a risk weight of less than or equal to 35% under the Standardised Approach
Other unencumbered loans not included in the above categories, excluding loans to financial institutions, with a residual maturity of >1 year and with a risk weight of less than or equal to 35% under the standardised approach
|85%||Cash, securities or other assets posted as initial margin for derivative contracts and cash or other assets provided to contribute to the default fund of a CCP
Other unencumbered performing loans with risk weights greater than 35% under the standardised approach and residual maturities of >1 year, excluding loans to financial institutions
Unencumbered securities that are not in default and do not qualify as HQLA with a remaining maturity of >1 year and exchange-traded equities
Physical traded commodities, including gold
|100%||All assets that are encumbered for a period of > 1 year
NSFR derivative assets net of NSFR derivative liabilities if NSFR derivative assets are greater than NSFR derivative liabilities
All other assets not included in the above categories, including non-performing loans, loans to financial institutions with a residual maturity of >1 year, non-exchange-traded equities, fixed assets, items deducted from regulatory capital, retained interest, insurance assets, subsidiary interests and defaulted securities