BANKING AFFAIRS

Detailed explanation-1: -The NSFR requires banks to maintain a stable funding profile in relation to their off-balance sheet assets and activities. The goal is to reduce the probability that shocks affecting a bank’s usual funding sources might erode its liquidity position, increasing its risk of bankruptcy.

Detailed explanation-2: -The NSFR will require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities.

Detailed explanation-3: -Banks must maintain a ratio of 100% to satisfy the requirement. Introduced as part of the post-crisis banking reforms known as Basel III, the ratio ensures banks do not undertake excessive maturity transformation, which is the practice of using short-term funding to meet long-term liabilities.

Detailed explanation-4: -The above ratio should be equal to at least 100% on an ongoing basis. However, the NSFR would be supplemented by supervisory assessment of the stable funding and liquidity risk profile of a bank.

Detailed explanation-5: -What is the Net Stable Funding Ratio? The NSFR presents the proportion of long term assets funded by stable funding and is calculated as the amount of Available Stable Funding (ASF) divided by the amount of Required Stable Funding (RSF) over a one-year horizon.