Agencies Propose Long-Term Liquidity Measure

The FDIC board today voted to propose the U.S. version of the Net Stable Funding Ratio, a long-term liquidity measurement included in the Basel III liquidity standards. The NSFR measures structural funding and is designed to ensure that covered firms maintain a stable funding profile over time. It complements the Liquidity Coverage Ratio, a measure of cash flow over a 30-day stress period.

The U.S. NSFR — which is being jointly proposed by the FDIC, OCC and Federal Reserve — would apply to banking institutions with more than $250 billion in total assets or $10 billion or more in on-balance sheet foreign exposures. The Fed will also apply a modified NSFR to certain bank holding companies with more than $50 billion in assets. Institutions subject to the rule would be required to publicly disclose their NSFRs quarterly using a standard template.

The proposed NSFR consists of the amount of available stable funding over a year divided by the institution’s required stable funding, with the numerator required to equal or exceed the denominator. The proposed rule contains detailed descriptions of what counts toward ASF and RSF. Should a bank’s NSFR fall under 1 at any point, it would be required to notify regulators and develop a remediation plan.

Notably, the agencies included an ABA-advocated tweak to the LCR in the NSFR proposal that would equalize the way national banks and state-charted banks treat fiduciary deposits in their calculations of high-quality liquid assets. Comments on the NSFR proposal are due by Aug. 5. For more information, or to contribute feedback to ABA’s comment letter, contact Alison Touhey.

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