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Wolters Kluwer Financial Services urges Banks to Explore Impact of Net Stable Funding Ratio

Impact of NSFR Reform Explored in Newly Released White Paper from Wolters Kluwer Financial Services

Banks should consider being prudent in business expansion by establishing stable funding which is driven by effective asset and liability management. That’s according to “Managing NSFR by Matching Conversion Ratios,” a new white paper released today by risk and regulatory technology firm Wolters Kluwer Financial Services. The report looks at the Net Stable Funding Ratio (NSFR), a Basel Committee reform designed to promote a resilient banking sector, and urges banks to conduct marginal analysis to manage the NSFR.

During the early months of the financial crisis many banks, while meeting existing capital requirements, experienced significant difficulties as they had not prudently managed liquidity. The NSFR will effectively require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. It is defined as the Available Stable Funding (ASF) divided by the Required Stable Funding (RSF) and will be effective on January 1, 2018.

“Sustainable funding will be of vital significance going forward, especially for the financial institutions heavily reliant on wholesale funding,” said Spark Wang Jun, senior regulatory intelligence expert at Wolters Kluwer Financial Services and author of the report.

A key finding of the white paper is that banks should now look to set their own strategy based on the NSFR guidelines and business structure. They can do this, for example, by analyzing Funding Determinants of the conversion ratios and calculating the Net Stable Funding Ratio under the Matching Principle.

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