Net Stable Funding Ratio
The Net Stable Funding Ratio is a regulatory liquidity standard requiring banks to maintain stable funding over a one-year horizon.
Meaning in Practice
The Net Stable Funding Ratio (NSFR) compares available stable funding to required stable funding over a 12-month period. It promotes longer-term resilience by limiting reliance on short-term wholesale funding. The ratio must remain at or above 100 percent under regulatory standards.
Why It Matters
The NSFR reduces structural funding risks and maturity mismatches. It strengthens bank stability during prolonged stress periods. By encouraging stable funding profiles, it enhances systemic resilience.
Market Impact
Higher NSFR requirements may increase demand for long-term funding instruments. Banks may adjust balance sheet structures and pricing strategies. This can influence credit conditions and funding costs.
Example
A bank increases its share of long-term deposits and bond issuance to meet the required stable funding threshold under the NSFR framework.