The Net Stable Funding Ratio Tomihiro Teranishi May 21-22, 2014 Asia Pacific CRO Forum
Basel III - Liquidity Final: Liquidity Coverage Ratio (LCR) finalized Jan 2013 LCR disclosure standard - finalized Jan 2014 Intraday liquidity finalized April 2013 Proposal: The Net Stable Funding Ratio (NSFR) public comments were due April 2014; the finalized rule is anticipated to be published early 2015. Potential Basel-industry discussion on NSFR derivatives NSFR disclosure standard early 2015?
The Net Stable Funding Ratio Objective: To limit overreliance on short-term wholesale funding, encourage better assessment of funding risk across on- and off-balance sheet items, and promote funding stability. NSFR= Available Stable Funding= (Liability ASF factor) Required Stable Funding = (Asset RSF factor) 100% Major changes from 2010 version: Better recognition of retail deposits Recognition of operational deposits Additional time bucket to mitigate cliff effect (6-12months) No distinctions between secured and unsecured funding from non-fi Consideration of encumbrance Use of HQLA criteria in LCR for better consistency RSF factor calibration based on asset quality (e.g. non-hqla securities)
NSFR is not long-term LCR More structured approach; NSFR is based on business-as-usual scenario base Balance sheet metric (e.g. Unsettled payables, methodology for recognition of collateral for SFT) NSFR addresses asset / liability mismatch rather than liquidity; BCBS aims have banks perform maturity transformation without heavily relying on short-term wholesale funding.
Is NSFR really not long-term LCR? Stress-based scenario incorporated by deploying HQLA definitions and haircut levels from LCR framework Wrong compromise? Compromise between two groups within BCBS, in which one group insisted 100% RSF for HQLAs What-if HQLA RSF= 100%? e.g. A bank with NSFR 100% whose ASF drops from 100 to 50 due to maturity falling below 1 year (ASF 100% to 50%). The bank term funds (x) with maturity beyond 365 days and invest the proceeds in HQLA. new NSFR= 50+x 100% 100+x RSF RSF HQLA x 0% 50 5% 53 50% 100 99% 5,000 100% N/A
Industry suggestions Inconsistency of ASF and RSF factors Asymmetrical treatment of certain types of short-term secured funding (ASF) and lending (RSF) transactions for the same product, tenor and collateral Short-term secured lending (RSF) used to cover shorts (ASF) ASF/RSF factors Improved treatment of HQLAs, equity, operational/corporate deposits, securitizations, trade finance etc. Secured Funding Transactions (repos and reverse repos etc.) Consideration of value of collateral for both RSFs and ASFs Counterparty identity (QCCPs, Broker dealers etc.)
Industry suggestions continued (2) Linked Transactions Consideration for self-funding, perfectly matched transactions which show funding and liquidity profile different from standalone transactions (e.g. Transactions covering firm or client shorts, municipal deposit requiring collateral, pre-funded swaps, etc.) Derivatives Netting rule: Intermediaries involving CCPs: 0% RSF/ASF Non-intermediaries: inclusion of IM, VM in netting Consideration of linked transactions Collateral treatment Reconsideration of RSF/ASF spread
Industry suggestions continued (3) Issues arising from balance sheet metric (Other payables and receivables) Unsettled transactions Deferred Tax Assets/Liabilities Operating leases
Region-specific concerns Limited retail deposit base in some countries (e.g. Australia, Hong Kong, Singapore) Ongoing development of Local bond market Limited HQLA supply (e.g. Australia) Other concerns?
The Net Stable Funding Ratio Tomihiro Teranishi May 21-22, 2014 Asia Pacific CRO Forum