Net Stable Funding Ratio [NSFR]

The Net Stable Funding Ratio (NSFR) is a Basel III standard requiring banks to maintain stable funding relative to their assets’ liquidity characteristics over a one-year horizon. Banks must maintain NSFR above 100%, meaning available stable funding exceeds required stable funding. For example, a 30-year mortgage (requiring 65% stable funding) funded by demand deposits (providing 90% stable funding) contributes positively to NSFR. Stable funding sources include capital, long-term debt, and stable deposits, weighted by reliability. Required funding depends on asset liquidity: cash (0%), government bonds (5%), gold (50%), corporate loans (85%), fixed assets (100%). NSFR complements the short-term focused LCR by addressing maturity mismatches that caused problems during the crisis when banks relied excessively on short-term wholesale funding for long-term assets. Implementation faced delays but became mandatory in 2018. NSFR encourages banks toward traditional deposit-funded lending rather than volatile wholesale funding. Critics argue it may reduce maturity transformation, a core banking function, potentially increasing borrowing costs and reducing credit availability.