Liquidity & Balance Sheet
Net Stable Funding Ratio
Also known as NSFR
The Net Stable Funding Ratio (NSFR) measures whether a bank's long-term assets are matched by long-term funding sources. It is the structural complement to the 30-day Liquidity Coverage Ratio under Basel III.
How is NSFR calculated?
Available Stable Funding (ASF) weights liabilities by maturity and counterparty stickiness. Capital counts at 100%, stable retail deposits at 95% and less-stable retail deposits at 90%, short-term wholesale funding at 0-50%. Required Stable Funding (RSF) weights assets by liquidity and maturity. Cash counts at 0%, long-dated loans to corporates at 85-100%.
Why does NSFR matter?
The NSFR addresses what brought down Lehman and Bear Stearns: funding billion-dollar balance sheets with overnight repo. It forces large banks to match their asset duration with funding duration over a one-year horizon, raising the cost of funding long-dated assets with short-dated wholesale money.
How do you interpret NSFR?
An NSFR at or above 100% is the regulatory requirement; 110%+ indicates a meaningfully long-funded balance sheet. Banks with NSFRs near 100% are running closer to the constraint and have less freedom to expand long-dated lending without lining up new term funding.
What is a good NSFR?
| Range | Label | Interpretation |
|---|---|---|
| ≥ 110% | Comfortable | Long-funded balance sheet. |
| 100–110% | Adequate | Meets minimum. |
| 90–100% | Watch | Below minimum; remediation required. |
| < 90% | Concern | Severe maturity mismatch. |
Worked example
Frequently asked
Who reports the NSFR?
Category I and II US banks must meet 100%. Category III banks meet 100% if they have $75 billion or more of weighted short-term wholesale funding and 85% otherwise. Category IV banks meet 70% if they have $50 billion or more of weighted short-term wholesale funding and are otherwise not subject to it. Smaller banks are not subject to the NSFR.
Does the NSFR penalize deposit-funded community banks?
No. Retail and small-business deposits get high stable-funding weights (95%+), so a community bank funded by core deposits would easily pass NSFR, which is why the rule only applies at scale.
How is NSFR different from LCR?
LCR is a 30-day acute liquidity stress test. NSFR is a 1-year structural funding-maturity test. Both must be met; they constrain different dimensions of liquidity risk.
Sources
- 12 CFR Part 249 Subpart K: Federal Reserve NSFR rule
- Basel III NSFR standard (BCBS)
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