Introduction

The amounts of available stable funding (ASF) and required stable funding (RSF) specified in the standard are calibrated to reflect the presumed degree of stability of liabilities and liquidity of assets.

The calibration reflects the stability of liabilities across two dimensions:

In determining the appropriate amounts of required stable funding for various assets, the following criteria were taken into consideration, recognising the potential trade-offs between these criteria:

Additional stable funding sources are also required to support at least a small portion of the potential calls on liquidity arising from off-balance sheet commitments and contingent funding obligations.

Definition of available stable funding

The amount of ASF is measured based on the broad characteristics of the relative stability of an institution’s funding sources, including the contractual maturity of its liabilities and the differences in the propensity of different types of funding providers to withdraw their funding.

The amount of ASF must be calculated by first assigning the carrying value of an institution’s capital and liabilities to one of five categories as presented below. The amount assigned to each category is then multiplied by an ASF factor, and the total ASF is the sum of the weighted amounts. Carrying value represents the amount at which a liability or equity instrument is recorded before the application of any regulatory deductions, filters or other adjustments. As noted in NSF10.2, definitions mirror those outlined in the LCR standard, unless otherwise specified.

When determining the maturity of an equity or liability instrument, the bank must assume investors redeem call options at the earliest possible date. For funding with options exercisable at the bank’s discretion, supervisors should take into account reputational factors that may limit a bank’s ability not to exercise the option.1 In particular, where the market expects certain liabilities to be redeemed before their legal final maturity date, banks and supervisors should assume such behaviour for the purpose of the NSFR and include these liabilities in the corresponding ASF category. Along the same lines, when calculating the NSFR, options by a bank to extend funding maturity of its obligations (eg soft-bullet structures) should generally be assumed not to be exercised when there may be reputational concerns. For long-dated liabilities, only the portion of cash flows falling at or beyond the six-month and one-year time horizons should be treated as having an effective residual maturity of six months or more and one year or more, respectively.

Derivative liabilities are calculated first based on the replacement cost for derivative contracts (obtained by marking to market) where the contract has a negative value. When an eligible bilateral netting contract is in place that meets the conditions as specified in CRE52.7, the replacement cost for the set of derivative exposures covered by the contract must be the net replacement cost.

In calculating NSFR derivative liabilities, collateral posted in the form of variation margin in connection with derivative contracts, regardless of the asset type, must be deducted from the negative replacement cost amount.2

Liabilities and capital instruments receiving a 100% ASF factor comprise:

Liabilities receiving a 95% ASF factor comprise “stable” (as defined in LCR40.7 to LCR40.12) non-maturity (demand) deposits and/or term deposits with residual maturities of less than one year,and/or term deposits with residual maturities greater than one year that can be withdrawn early without a significant penalty, provided by retail and small business customers.4

Liabilities receiving a 90% ASF factor comprise “less stable” (as defined in LCR40.13 to LCR40.15) non-maturity (demand) deposits and/or term deposits with residual maturities of less than one year, and/or term deposits with residual maturities greater than one year that can be withdrawn early without a significant penalty, provided by retail and small business customers.5

Liabilities receiving a 50% ASF factor comprise:

Liabilities receiving a 0% ASF factor comprise:

Definition of required stable funding for assets and off-balance sheet exposures

The amount of RSF is measured based on the broad characteristics of the liquidity risk profile of an institution’s assets and off-balance-sheet exposures. The amount of RSF is calculated by first assigning the carrying value of an institution’s assets to the categories listed below. The carrying value of an asset item should generally be recorded by following its accounting value, ie net of specific provisions, in line with CRE20.1 and the requirements for on-balance sheet, non-derivative assets in LEV30. The amount assigned to each category is then multiplied by its associated RSF factor, and the total RSF is the sum of the weighted amounts added to the amount of off-balance-sheet activity (or potential liquidity exposure) multiplied by its associated RSF factor. As noted in NSF10.2, definitions mirror those outlined in the LCR standard, unless otherwise specified.9 Regardless of whether a bank uses the internal ratings-based (IRB) approach, the standardised approach risk weights in CRE20 must be used to determine the NSFR treatment.

Unless explicitly stated otherwise in the NSFR standard, assets must be allocated to maturity buckets according to their contractual residual maturity. However, this should take into account embedded optionality, such as put or call options, which may affect the actual maturity date as described in NSF30.7 and NSF30.17. The RSF factors assigned to various types of assets are intended to approximate the amount of a particular asset that would have to be funded, either because it will be rolled over, or because it could not be monetised through sale or used as collateral in a secured borrowing transaction over the course of one year without significant expense. Under the standard, such amounts must be supported by stable funding.

Assets must be allocated to the appropriate RSF factor based on their residual maturity or liquidity value. When determining the maturity of an instrument, the bank must assume investors exercise any option to extend maturity. For assets with options to extend exercisable at the bank’s discretion, supervisors should take into account reputational factors that may limit a bank’s ability not to exercise the option.10 In particular, where the market expects certain assets to be extended in their maturity, banks and supervisors should assume such behaviour for the purpose of the NSFR and include these assets in the corresponding RSF category. For amortising loans (or other principal repayment claims), the portion that comes due within the one-year horizon may be treated in the less-than-one-year residual maturity category. Unencumbered loans without a stated final maturity, even where the borrower may repay the loan in full and without penalty charges at the next rate reset date, are deemed to have an effective residual maturity period of more than one year and must be given either a 65% or 85% RSF factor depending on their risk weights under the standardised approach for credit risk. If there is a contractual provision with a review date at which the bank may determine whether a given facility or loan is renewed or not, supervisors may authorise, on a case by case basis, banks to use the next review date as the maturity date. In doing so, supervisors must consider the incentives created and the actual likelihood that such facilities/loans will not be renewed. In particular, options by a bank not to renew a given facility should generally be assumed not to be exercised when there may be reputational concerns.

In the case of exceptional central bank liquidity absorbing operations, claims on central banks may receive a reduced RSF factor. For those operations with a residual maturity equal to or greater than six months, the RSF factor must not be lower than 5%. When applying a reduced RSF factor, supervisors need to closely monitor the ongoing impact on banks’ stable funding positions arising from the reduced requirement and take appropriate measures as needed. Also, as further specified in NSF30.20, assets that are provided as collateral for exceptional central bank liquidity providing operations may receive a reduced RSF factor which must not be lower than the RSF factor applied to the equivalent asset that is unencumbered. In both cases, supervisors should discuss and agree on the appropriate RSF factor with the relevant central bank.

For purposes of determining its required stable funding, an institution must include financial instruments, foreign currencies and commodities for which a purchase order has been executed, and exclude financial instruments, foreign currencies and commodities for which a sales order has been executed, even if such transactions have not been reflected in the balance sheet under a settlement-date accounting model, provided that:

Assets on the balance sheet that are encumbered11 for one year or more must receive a 100% RSF factor. Assets encumbered for a period of between six months and less than one year that would, if unencumbered, receive an RSF factor lower than or equal to 50% must receive a 50% RSF factor. Assets encumbered for between six months and less than one year that would, if unencumbered, receive an RSF factor higher than 50% must retain that higher RSF factor. Where assets have less than six months remaining in the encumbrance period, those assets may receive the same RSF factor as an equivalent asset that is unencumbered. In addition, for the purposes of calculating the NSFR, assets that are encumbered for exceptional12 central bank liquidity operations may receive a reduced RSF factor. Supervisors should discuss and agree on the appropriate RSF factor with the relevant central bank, which must not be lower than the RSF factor applied to the equivalent asset that is unencumbered.

For secured funding arrangements, use of balance sheet and accounting treatments should generally result in banks excluding, from their assets, securities which they have borrowed in securities financing transactions (such as reverse repos and collateral swaps) where they do not have beneficial ownership. In contrast, banks must include securities they have lent in securities financing transactions where they retain beneficial ownership. Banks should also not include any securities they have received through collateral swaps if those securities do not appear on their balance sheets. Where banks have encumbered securities in repos or other securities financing transactions, but have retained beneficial ownership and those assets remain on the bank’s balance sheet, the bank must allocate such securities to the appropriate RSF category.

Amounts receivable and payable under these securities financing transactions should generally be reported on a gross basis, meaning that the gross amount of such receivables and payables should be reported on the RSF side and ASF side, respectively. The only exception is that securities financing transactions with a single counterparty may be measured on a net basis when calculating the NSFR, provided that the netting conditions for securities financing transactions set out in LEV30 are met.

Derivative assets are calculated first based on the replacement cost for derivative contracts (obtained by marking to market) where the contract has a positive value. When an eligible bilateral netting contract is in place that meets the conditions as specified in CRE52.7, the replacement cost for the set of derivative exposures covered by the contract must be the net replacement cost.

In calculating NSFR derivative assets, collateral received in connection with derivative contracts must not offset the positive replacement cost amount, regardless of whether or not netting is permitted under the bank’s operative accounting or risk-based framework, unless it is received in the form of cash variation margin and meets the conditions as specified in LEV30 for the cash portion of variation margin exchanged between counterparties to be viewed as a form of pre-settlement payment.13 Any remaining balance sheet liability associated with variation margin received that does not meet the criteria above or initial margin received may not offset derivative assets and should be assigned a 0% ASF factor.

Assets assigned a 0% RSF factor comprise:

Assets assigned a 5% RSF factor comprise unencumbered Level 1 assets as defined in LCR30.41, excluding assets receiving a 0% RSF as specified above, and including:

Assets assigned a 10% RSF factor comprise unencumbered loans to financial institutions with residual maturities of less than six months, where the loan is secured against Level 1 assets as defined in LCR30.41, and where the bank has the ability to freely rehypothecate the received collateral for the life of the loan.

Assets assigned a 15% RSF factor comprise:

Assets assigned a 50% RSF factor comprise:

Assets assigned a 65% RSF factor comprise:

Assets assigned an 85% RSF factor comprise:

Assets assigned a 100% RSF factor comprise:

Many potential off-balance sheet liquidity exposures require little direct or immediate funding but can lead to significant liquidity drains over a longer time horizon. The NSFR assigns an RSF factor to various off-balance sheet activities in order to ensure that institutions hold stable funding for the portion of off-balance sheet exposures that may be expected to require funding within a one-year horizon.

Consistent with the LCR, the NSFR identifies off-balance-sheet exposure categories based broadly on whether the commitment is a credit or liquidity facility or some other contingent funding obligation. Table 1 identifies the specific types of off-balance-sheet exposures to be assigned to each off-balance sheet category and their associated RSF factor.

Interdependent assets and liabilities

National supervisors have discretion in limited circumstances to determine whether certain asset and liability items, on the basis of contractual arrangements, are interdependent such that the liability cannot fall due while the asset remains on the balance sheet, the principal payment flows from the asset cannot be used for something other than repaying the liability, and the liability cannot be used to fund other assets. For interdependent items, supervisors may adjust RSF and ASF factors so that they are both 0%, subject to the following criteria:

Before exercising this discretion, supervisors should consider whether perverse incentives or unintended consequences are being created.

The instances where supervisors will exercise the discretion to apply this exceptional treatment should be transparent, explicit and clearly outlined in the regulations of each jurisdiction, to provide clarity both within the jurisdiction and internationally.