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    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    October 20, 2020

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations. The rule requires the banking organizations to maintain minimum amount of stable funding to support their assets, commitments, and derivatives exposures over a one-year time horizon. Under the final rule, the NSFR requirement increases in stringency based on risk-based measures of the top-tier covered company. The effective date for this final rule will be July 01, 2021. Holding companies and any covered nonbank companies regulated by FED will be required to publicly disclose their NSFR levels semiannually beginning in 2023.

    The US Agencies are adopting in final form the 2016 proposal to implement NSFR requirement, with certain adjustments. The agencies are also finalizing the two "tailoring proposals" released subsequent to issuance of the proposed rule to revise the criteria for determining the scope of application of the NSFR requirement. FED will issue a separate proposal for notice and comment to amend its information collection under its complex institution liquidity monitoring report (FR 2052a) to collect information and data related to the requirements of the final rule. The agencies received approximately 30 comments on the proposed rule and approximately 20 comments related to the NSFR rule in response to the tailoring proposals. The final rule retains the general design for the NSFR calculation and calibrates minimum requirements to the risk profiles of banking organizations in a manner consistent with the tailoring final rule. FED also published statements from the Governor Brainard and the Vice Chair for Supervision Randal K. Quarles, with comments on the published rule. However, as part of the modifications, the final rule:

    • Assigns a 0% required stable funding factor to unencumbered level 1 liquid asset securities and certain short-term secured lending transactions backed by level 1 liquid asset securities
    • Provides more favorable treatment for certain affiliate sweep deposits and non-deposit retail funding
    • Permits cash variation margin to be eligible to offset a covered company’s current exposures under its derivatives transactions even if it does not meet all of the criteria in the agencies’ supplementary leverage ratio rule; variation margin received in the form of "rehypothecatable" level 1 liquid asset securities to also be eligible to offset current exposures of a covered company
    • Reduces the amount of a covered company’s gross derivatives liabilities that will be assigned a 100% required stable funding factor
    • Amends certain definitions in the agencies’ liquidity coverage ratio rule that are also applicable to the NSFR

    The final rule applies to certain large U.S. depository institution holding companies, depository institutions, and U.S. intermediate holding companies of foreign banking organizations, each with total consolidated assets of USD 100 billion or more, together with certain depository institution subsidiaries. The rule establishes NSFR as a quantitative metric to measure the stability of the funding profile of certain large banking organizations. U.S. depository institution holding companies and U.S. intermediate holding companies subject to the final rule are required to publicly disclose their NSFR and certain components of their NSFR every second and fourth calendar quarter for each of the two immediately preceding calendar quarters. 

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    Effective Date: July 01, 2021

    Keywords: Americas, US, Banking, Reporting, NSFR, LCR, Basel, Liquidity Risk, Disclosures, US Agencies

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