The EU-Commission published its final proposal for the implementation of the still unaddressed Basel III Net Stable Funding Ratio (NSFR) on 23rd of November 2016. Since credit institutions lack sufficient experience in NSFR-management it is of crucial importance for them to introduce a working mechanism prior to the compulsory deadline. Moreover, in contrast to the LCR the NSFR does not allow last-minute correction measures in order to satisfy the minimum requirements.
Rather the NSFR-Ratio leads to a medium- and long-term restructuring of the balance sheet with a potential impact on the business model. This renders the NSFR a more relevant liquidity requirement from a corporate management perspective than the short-term LCR. Our ALM Forum No. 18 provides an overview of the current European implementation requirements and the respective deviations from the Basel standards.
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