Prudential Regulators Issue Net Stable Funding Ratio Proposal

On Wednesday, June 1, 2016, the Federal Register published the prudential regulators joint rulemaking proposal on the Net Stable Funding Ratio (NSFR).  This rule, when finalized, is intended to complement other rules (e.g., Basel Capital, Liquidity Coverage Ratio) implemented to promote the stability of the banking industry. Specifically, the NSFR would require covered companies to maintain a stable source of funding sufficient to sustain a one-year time period. The NSFR, or a modified version, would generally apply to large banking institutions with more than $50 billion in assets or $10 billion in foreign exchange exposures.

Under the proposal, covered companies would be required to maintain an NSFR of 1.0 based on the ratio of Available Stable Funding (ASF) and Required Stable Funding (RSF). ASF would include risk-adjusted capital and liabilities, while RSF would include risk-adjusted valuations of the covered companies’ assets, undrawn commitments, and derivatives exposures. The proposal also contemplates requiring covered companies to provide quarterly disclosures of its NSFR. The comment deadline is August 5, 2016.