Net Stable Funding Ratio (NSFR)

The net stable funding ratio (NSFR) requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the likelihood that disruptions to a bank’s regular sources of funding erodes its liquidity position in a way that increases the risk of its failure and potentially lead to broader systemic stress. The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability.

The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis. The available stable funding is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of such stable funding required (Required Stable Funding) of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance sheet (OBS) exposures.

The standard prescribes that the available amount of stable funding divided by the required amount of stable funding is larger than 100%.

Reporting for NSFR is separated between required and available stable funding.

Data Model

The Net Stable Funding Ratio entity is part of the Liquidity Risk Result diagram. Therefore, all attributes and relationships of liquidity risk result are applicable to Net Stable Funding Ratio.

This includes:

  • A relationship to Financial Contract

  • A relationship to Financial Instrument

  • A relationship to Risk Reporting Node and the hierarchy defined by the links between Risk Reporting Node and Risk Reporting Node Hierarchy Relation

  • A relationship to Result Group

As a consequence, the NSFR key figures can be assigned to a financial contract, a financial instrument, or an arbitrary reporting level represented by a risk reporting node, which can then be part of a hierarchy using the Risk Reporting Node Hierarchy Relation entity.

The following figure is an example of how you can model NSFR in the conceptual data model (CDM):

Note that the model differentiates between the required funding (Net Required Stable Funding Ratio entity) and the available funding (Net Available Stable Funding Ratio entity). The former has additional attributes that cover high-quality liquid assets (HQLA). Due to their quality, these assets require less available funding because they are less likely to fail.

The standard bank reports that are required for NSFR differentiate the numbers to be reported into different lines that are described by the NSFR Item Type attribute. Examples are Cash, Reserves and HQLA exposures to central banks or Common equity tier 1.

The reporting requirements for NSFR state that the amounts and factors are considered for different time intervals for each NSFR line item. You have the following reporting alternatives:

  • Standard approach: amounts and factors are to be reported for the following time periods

    • up to 6 months

    • 6 to 12 months

    • more than 12 months

  • Simplified approach: amounts and factors are only reported for the following time periods:

    • up to 12 months

    • more than 12 months

The NSFR Calculation Approach attribute differentiates between these two approaches. If the value is standard approach, there are three possible time buckets to be assigned per NSFR item type via the relationship Time Bucket Assigned To Net Stable Funding Ratio. If the value is simplified approach, there are two time buckets to be assigned.

The combination of whether an entry in the Net Stable Funding Ratio entity is for available or required stable funding (via the Net Stable Funding Ratio Direction Category category in the inheritance), the NSFR Item Type (which describes the line) and the time bucket allows to identify the exact cell in a central bank report to which an amount and a factor refer.

More Information

For more information, see the related entities and their definitions in the data model represented in SAP PowerDesigner.