What does Net Stable Funding Ratio mean conceptually?

“is expressed as the minimum percentage of a bank’s required stable funding that must be sourced from available stable funding.”

Can anyone provide a better explanation of this?

Banks have, broadly, three classifications of liabilities (funds from sources):

  • Hot funds: those that will likely be withdrawn if, for example, interest rates change
  • Vulnerable funds: those for which a material proportion – say, 25% – 30% – is expected to be withdrawn in the foreseeable future
  • Stable funds: those for which only a small percentage is expected to be withdrawn in the foreseeable future.

Basel III set requirements for stable funds; e.g., 50% of a bank’s funds must be stable funds. The NSFR is the minimum percentage of those required stable funds that the bank must be able to get from available (i.e., current) sources, as opposed to the bank getting stable funds by advertising to acquire new sources.

Thanks! Clear and concise explanation :slight_smile:

My pleasure.