What is the legal liquidity ratio

Net stable funding ratio (NSFR)

The regulatory performance indicator Net Stable Funding Ratio (NSFR) - like the Liquidity Coverage Ratio (LCR) - was introduced as a result of the financial crisis in 2008. The aim of the NSFR is to ensure the medium to long-term structural liquidity of institutions. The aim is to reduce the dependency on short-term refinancing in particular, thereby improving the banks' overall resilience to stress.

Definition of Net Stable Funding Ratio

The NSFR is defined as the ratio of available stable funding (ASF) and required stable funding (RSF).

Figure 1: Calculation logic and minimum quota

The liabilities are weighted using the ASF weighting factors specified by the supervisory authority. The level of the factors depends on the type, counterparty and term of the refinancing instrument. While a refinancing instrument with a remaining term of at least 12 months is generally fully counted as available stable refinancing, the qualifying portion drops to 50%, for example, for deposits from corporate customers with a remaining term of less than 6 months. Long refinancing terms therefore have a positive effect on the NSFR in principle.

The weighting of the assets to determine the required stable refinancing is basically the same. However, short maturities of assets are usually given preference with lower weighting factors. Further criteria are the ability to liquidate and the counterparty of the receivables. Short terms, high liquidity and low-risk transactions have a positive effect on the amount of stable refinancing required.

The weighting factors of the sNSFR specified by the supervisory authority tend to be more conservative and, depending on the business model and product portfolio of the institution, generally lead to a lower net stable funding ratio.

Development and current status

Figure 2: NSFR timeline

The NSFR was already integrated into the BCBS framework as BCBS # 188 in 2010 and further revised and specified in the following years. Since the key figure was included in the Capital Requirements Regulation (CRR) or in the more specific technical implementation standards (ITS), the NSFR has also been part of European law and thus directly relevant for CRR credit institutions.

With CRR II, a fundamentally revised version of the NSFR was presented. As of June 28, 2021, institutions are required to maintain a net stable funding ratio of at least 100%. In addition, a so-called sNSFR was introduced for small and non-complex institutes. The sNSFR forms have a much less granular structure of the reporting forms and are intended to reduce the effort required to create reports for small institutions.