The Net Stable Funding Ratio (NSFR) is a significant metric in banking aimed at ensuring the long-term stability of an institution's funding. The NSFR is a regulatory requirement under Basel III and the Capital Requirements Regulation (CRR).
The NSFR measures the ratio between an institution's stable, long-term funding sources and its long-term assets. It aims to ensure that a bank has sufficient stable funding to support its long-term assets. This is to prevent banks from becoming overly reliant on short-term or volatile funding sources, which can increase the risk of liquidity shortages and financial crises.
The NSFR requires banks to maintain an adequate amount of stable funding to cover their long-term assets. An NSFR of at least 100% indicates that a bank has enough stable funding to support its long-term assets. The specific requirements may vary depending on regulatory provisions and local circumstances, but the NSFR is a central instrument for ensuring long-term financial stability in the banking sector.
