Agencies Finalize Net Stable Funding Ratio Despite Criticism

On October 20, 2020, the federal banking agencies finalized a joint rule to adopt an NSFR requirement for certain banking organizations with total consolidated assets of $100 billion or more and certain of their depository institution subsidiaries.

Adoption of an NSFR requirement fulfills what Federal Reserve Vice Chair Quarles has called a “moral obligation” to complete the implementation of the Basel liquidity framework in the United States. Originally proposed in May 2016, the NSFR is intended to complement the LCR by reducing a Covered Company’s funding risk over a one year horizon, in contrast to the LCR’s 30-day stress assumption.

Many commenters questioned the need for the NSFR given the implementation of other U.S. regulations which similarly support stable funding and liquidity. In the final rule, the agencies defended the concept of an NSFR, but did make certain changes responsive to commenters’ calls for significant modification, in particular by generally excluding U.S. Treasury securities and U.S. Treasury-backed repurchase agreements from stable funding requirements.

Please click here to read the full alert memorandum and here for comparison charts of the final rule against the requirements of the Basel NSFR and the agencies’ proposal.