Agencies propose rule regarding Net Stable Funding Ratio for US banking organizations

House on top of stacked coins

On April 26, 2016, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) (the “Agencies”) approved a proposed rule1 to implement the Net Stable Funding Ratio (NSFR)—a quantitative measure of a company’s one-year funding profile—for certain US bank holding companies (BHCs) and savings and loan holding companies (SLHCs).

The Federal Reserve Board (FRB) is scheduled2 to consider the proposal on May 3, 2016.

The proposed rule would become effective on January 1, 2018 and public comments on the proposal are due by August 5, 2016.


Continuing the roll-out of post-crisis banking regulation, the NSFR builds on the liquidity regulation embodied in the Liquidity Coverage Ratio (LCR), Enhanced Prudential Standards (EPS), and 2052a/b (cash flow data submission). The LCR focuses on a 30-day standardized stressed cash flow measure, EPS looks at bank-internal stress tests and governance, and the 2052a/b is a data-gathering tool for the regulators on contractual and open-ended cash flows.

The NSFR is complementary in that it measures the medium-term (less than one year) balance between sources and uses of funds. While similar to the LCR by relating liquidity sources and uses, it differs in that where the LCR is based on cash flows, the NSFR is based on balance-sheet data. Thus, the time-weighting is less granular than LCR but the product-level categories and related assumptions on liquidity remain similar.


The full NSFR standard would apply to US BHCs and SLHCs with more than $250 billion in total assets or more than $10 billion in on-balance sheet foreign exposures, and any insured depository institution subsidiary of such BHCs or SLHCs with more than $10 billion in total assets.

In addition, for FRB-regulated entities, the proposed rule would also include a modified NSFR requirement for BHCs and certain SLHCs with between $50 billion and $250 billion in total assets and less than $10 billion in on-balance sheet foreign exposure. Institutions subject to the modified NSFR would be required to maintain an amount of stable funding equivalent to 70 percent of the amount that would be required for a company subject to the full NSFR.

The regulators have also retained the discretion to (1) require a higher ratio for an institution if they deem it appropriate and (2) extend the applicability of the rule to institutions not meeting the stated thresholds.

Although the proposal would not apply to the US operations of foreign banking organizations (FBOs) or intermediate holding companies established by FBOs, the FRB intends to implement an NSFR requirement through a future, separate rulemaking for the US operations of FBOs with more than $50 billion in total assets.

Similarly, the proposed rule would not apply to nonbank financial companies designated for heightened supervision by the Financial Stability Oversight Council (FSOC), but the FRB retains the authority to apply an NSFR standard and disclosure requirements to these companies in the future.

Key takeaways

Covered companies would be required to calculate a weighted measure of the stability of their equity and liabilities over a one-year time horizon (i.e., its available stable funding (ASF) amount), which would be required to be greater than or equal to a minimum level of required stable funding (i.e., its required stable funding (RSF) amount) calculated based on the liquidity characteristics of its assets, derivative exposures, and commitments over the same one-year period.

Institutions subject to either the full NSFR or the modified NSFR would be required to publicly disclose the company’s NSFR and the components of its NSFR each calendar quarter. The proposed rule provides a template for the covered institutions.

Covered institutions would have 10 days to notify their regulator if they find that they have fallen or will fall below the minimum NSFR ratio. Similar to the reporting on LCR shortfalls, the regulators have indicated that they will evaluate each of these situations on a case-by-case basis, but would expect the institution to lay out a plan for re-establishing compliance and report on progress on a periodic basis.

The proposed rule is largely consistent with the international version3 of the NSFR standard published by the Basel Committee on Banking Supervision (BCBS) in October 2014 and the NSFR disclosure requirements4 published by the BCBS in June 2015.

What does this mean for institutions?

In an effort to promote stability in the banking system, the Agencies are extending the regulatory coverage of liquidity exposure well beyond the 30 days covered by the LCR regulation. This will tend to restrict one of the core functions of banks, that of maturity transformation. The Agencies indicate that if the proposed NSFR rule were in effect today the aggregate shortfall would be a relatively small $39 billion, so perhaps many banks have already adjusted their balance sheet profiles in anticipation of the rule.

Operationally, banks will need to consider how they will aggregate the data required to calculate the NSFR and supporting reports, which will differ from those supporting the LCR. Furthermore, they will need to put appropriate controls in place to ensure that the NSFR figures are aligned with financial, regulatory, and internal risk reports.

While foreign banks are not covered by this rule, some of the larger FBOs with significant US operations will need to consider the differences in the US rule versus their home country’s implementation, as it is likely that they will be covered at some point in the future.

As the comment period continues, Deloitte Advisory will issue a more detailed analysis of the proposal.

For more information regarding the proposed rule, refer to our analysis here.

1 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements, Notice of Proposed Rulemaking with Request for Public Comment, April 26, 2016, available at
2Government in the Sunshine Meeting Notice, Board of Governors of the Federal Reserve System, available at
3Basel Committee on Banking Supervision, Basel III: the net stable funding ratio, October 2014, available at
4Basel Committee on Banking Supervision, Net Stable Funding Ratio disclosure standards, June 2015, available at

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