34 years: Banking and Capital Markets
The Net Stable Funding Ratio, or NSFR, is one of many liquidity risk metrics used as part of a bank’s suite of risk exposure indicators. Moorad describes the objective of the NSFR and how it is defined, as well as what Available Stable Funding (ASF) and Required Stable Funding (RSF) mean as factors of the NSFR metric.
The Net Stable Funding Ratio, or NSFR, is one of many liquidity risk metrics used as part of a bank’s suite of risk exposure indicators. Moorad describes the objective of the NSFR and how it is defined, as well as what Available Stable Funding (ASF) and Required Stable Funding (RSF) mean as factors of the NSFR metric.
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7 mins 35 secs
NSFR is used to determine how much “available” funding there is for a bank, and how much funding is “required” over the long term. A bank must run an NSFR of above 100% at all times, to indicate that it has a long term stable structural funding position in place. A bank that reports a level below 100% must take steps to either increase its ASF, reduce its RSF, or both.
Key learning objectives:
Define NSFR and outline its aims
Describe the NSFR metric and what it tells us
Define the terms ASF and RSF
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The longer the better, of course, though Basel has set the line at one year, beyond which funding is considered to have value for NSFR purposes, whereas funding with a remaining term of less than one year essentially has a lower value.
It promotes balance sheet funding resilience over the longer term; setting a limit for it ensures that sufficient long-term funding is in place to support a bank’s assets. In other words, maintaining an adequate NSFR should help considerably in ensuring a stable funding structure for any bank over the long term.
Available Stable Funding / Required Stable Funding >c.100%
A bank’s total ASF is the portion of its capital and liabilities that will remain with the institution for more than one year.
A bank’s total RSF is the amount of stable funding that is required to hold given the liquidity characteristics and residual maturities of its assets and the contingent liquidity risk arising from its off-balance sheet exposures
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