Managing NSFR by Matching Conversion Ratios
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  • Managing NSFR by Matching Conversion Ratios

    Managing NSFR

    The Net Stable Funding Ratio (NSFR), which is the Available Stable Funding (ASF) divided by the Required Stable Funding (RSF), will be effective from January 1, 2018 - with minimum requirement at 100% by the Basel Committee on Banking Supervision (BCBS). This is the key component of Basel 3, governing the long-term funding risk over one year under stress scenarios to prevent radical expansion and over reliance on short-term funding. Prior to this, traditional liquidity measures, under Asset and Liability Management (ALM), were based on contractual maturity and thus unable to capture unexpected cash outflows in the stressed markets, such as during the financial crisis.

    For the long-run, exposures and resources of the stable funding must be controlled during planning for the asset and liability together with the capital. As a result, a bank should set its own strategy based on the NSFR guideline and business structure by analyzing Funding Determinants of the conversion ratios and calculating the Net Stable Funding under the Matching Principle.

    Read more about the challenges that banks are facing and learn how to effectively manage the liquidity risk under the Basel III. Please fill in your details below to be re-directed to this complimentary whitepaper..