Structural liquidity ratio

The net stable funding ratio (in Switzerland financing ratio ; English net stable funding ratio , abbreviated NSFR) is in the wake of Basel III established code , the optimization of the structural liquidity of banks is to serve, with a time horizon is considered by one year. A strategy in which long-term loans are refinanced on a short-term basis presupposes that the bank can constantly reschedule its expiring short-term debts. In the financial crisis from 2007 , however, this was often no longer possible. Such liquidity risks are to be avoided through a minimum requirement for the structural liquidity ratio .

The so-called “observation phase” began in 2011 for this standard. Changes to the procedure may be possible during this phase. The key figure will be binding from June 27, 2021, 2 years after the entry into force of CRR II (Regulation (EU) 2019/876 of the European Parliament and of the Council of May 20, 2019). The standard is designed to complement the liquidity coverage ratio and liquidity ratio (LCR abbreviation of English liquidity coverage ratio ), which refers to the short-term liquidity with a time horizon of 30 days.

definition

The structural liquidity ratio NSFR is defined as the ratio of the stable funding available on the liabilities side of the balance sheet to the less liquid assets that require stable funding:

${\displaystyle NSFR={\frac {\text{Verfügbarer Betrag stabiler Refinanzierung}}{\text{Erforderlicher Betrag stabiler Refinanzierung}}}}$

The structural liquidity ratio should exceed 100%; in other words, the available amount should exceed the required amount, i.e. the numerator of the above fraction should be greater than the denominator. The available stable refinancing is that part of equity and borrowed funds which can be expected to represent a reliable source of funds over the time horizon of one year under persistent stress conditions. The required amount is determined by aggregating the value of the assets held and off-balance sheet contingent liabilities , weighting a factor that reflects the liquidity characteristics.

Asset positions (liquidity of assets) are therefore compared to liability positions (stability of liabilities). This happens over three different time intervals, 0M - 6 months, 6M - 12M and 12> months. For example, 0% of the liabilities must be reserved for cash, as this has the highest liquidity. Loans to banks must be backed by 100% liabilities for the 12> months. Particularly noteworthy is the privilege of government bonds, where only 5% of the liabilities have to be backed over all time intervals. In addition, customer deposits are almost entirely counted as a stable source of refinancing.

Stable refinancing available

The available stable funding (English Available stable funding , ASF) is determined by the total amount of different categories of cash is aggregated the bank. The amount of some categories is only credited proportionally; a so-called ASF factor is set for these, which defines the maximum amount that can be credited.

The following funds are counted as stable refinancing:

• Equity
• Preferred shares with a remaining term of at least one year
• Liabilities with an effective remaining term of at least one year
• Deposits with no maturity or time deposits with a remaining term of less than a year that can be expected to remain with the bank for an extended period of time. For stable deposits, an ASF factor of a maximum of 90% may be applied, for less stable deposits only 80%
• Funds provided by large customers with a remaining term of less than one year that can be expected to remain with the bank for a longer period of time. An ASF factor of a maximum of 50% may be used for this

In this calculation, extended borrowing through the use of credit facilities at the central bank outside of the usual open market operations need not be taken into account, in order to avoid dependence on the central bank as a refinancing source. Stable refinancing should also be given under exceptional conditions, to this extent the standard requires the consideration of a stress scenario in which a credit institution is confronted with one or more of the following problems, which customers are aware of:

• significant decrease in profitability or solvency
• potential downgrade of the debtor, credit or deposit rating
• material event that calls the credit institution's creditworthiness into question

Stable refinancing required

To calculate the amount of required stable funding (English required stable funding , RSF) all assets are assessed by a credit institution, in addition, off-balance sheet items and other business. Categories are created and so-called RSF factors are assigned to them, which express the proportion with which the amounts in this category are to be taken into account. The RSF factors, which are assigned to the various asset categories, approximately correspond to the proportion of a specific asset that cannot be made liquid within one year through the sale or use as collateral for a secured borrowing on an extended basis. Since off-balance sheet items can also trigger considerable liquidity outflows in times of crisis, RSF factors are also defined for various off-balance sheet transactions.

example

Consider the following bank balance sheet:

• Assets:
  • Long-term receivables: € 100 million (RSF = 100%)
  • Short-term receivables: € 80 million (RSF = 50%)
  • Cash: € 20 million (RSF = 0%)
• Liabilities:
  • Own funds: € 20 million (ASF = 100%)
  • Short-term liabilities: € 30 million (ASF = 50%)
  • Sight deposits: € 150 million (ASF = 90%)

The required stable funding is therefore € 140 million and the available stable funding is € 170 million. The result is a structural liquidity ratio NSFR of 121.4%.

literature

• Basel Committee on Banking Supervision: Basel III: International framework agreement on measurement, standards and monitoring of liquidity risk . Ed .: Bank for International Settlements. 2010, ISBN 92-9131-331-9 ( bis.org [PDF; 349 kB ; accessed on December 25, 2018]).

Individual evidence

1. ↑ Basel Committee on Banking Supervision: Basel III: International framework agreement on measurement, standards and monitoring of liquidity risk . Ed .: Bank for International Settlements. 2010, ISBN 92-9131-331-9 ( bis.org [PDF; 349 kB ; accessed on December 25, 2018]).
2. ↑ FINMA opens a hearing on the partial revision of the "Liquidity Risks Banks" circular. January 10, 2017, accessed November 9, 2018 .