Finalized Basel III Stable Funding Disclosure Standards Will Improve
Bank Transparency
Last Tuesday, the Basel Committee on Banking Supervision finalized standards for bank disclosure of its net
stable funding ratio (NSFR) calculations. The disclosure standards are positive for creditors of internationally
active banks because they will improve transparency into bank funding, allowing investors to assess the
adequacy and reliability of funding for a bank’s least-liquid assets, including loans.
The disclosure template provides detailed information on available stable funding and required stable
funding, including residual maturity of assets and liabilities, and it is aligned with disclosure standards for
the complementary and shorter-term liquidity coverage ratio (LCR). NSFR disclosure standards will be
required beginning with a bank’s first reporting period after 1 January 2018.
The NSFR disclosure requirements will form part of the Basel capital and liquidity framework required Pillar
3 disclosures. These disclosures provide additional financial transparency along with periodic financial
statements and are an important contributor to market discipline. Many large, internationally active banks
already disclose NSFR-related data, so many banks will likely adopt this disclosure template before 2018.
In addition to providing transparency on the stability and duration of bank funding, NSFR disclosures will
improve the funding comparability of international banks across jurisdictions. Comparisons can be
challenging, owing to differences in accounting standards or national implementation of global standards
such as the Basel framework. Also, the NSFR template will improve existing funding disclosures by banks of
asset and liability maturities by showing maturities in a standardized manner across the balance sheet and
on a weighted-amount basis.
Detailed NSFR disclosure is positive for bank investors evaluating a bank’s liquidity and stable funding
position since the ratio is distinct from the LCR, measuring a different type of funding risk. The LCR
measures whether banks hold enough high-quality liquid assets (HQLA) that could be liquidated to cover
stressed cash outflows (e.g., deposit outflows and maturing liabilities that cannot be rolled over) over a 30-
day period. The NSFR measures whether funding of longer duration adequately supports less liquid longerterm
assets such as loans.
The NSFR template aligns with the LCR disclosure template, which for investors provides some consistency
in evaluating short- and long-term liquidity risks. Both, for example, require disclosure of stable and less
stable retail deposits, and wholesale deposits used for operational purposes. These disclosures are used to
calculate stressed cash outflows in the LCR, and in the NSFR are categories of available stable funding.
The Basel Committee noted that in formulating the template, it balanced usability of disclosure with
“undesirable dynamics during stress.” Although the Basel Committee did not specify exactly how it achieved
the trade-off in the disclosure framework, this has likely restricted funding transparency to some degree.
In addition to a standardized reporting template, the NSFR disclosure standards require qualitative
disclosures that are important in evaluating a bank’s stable funding position. The disclosure of
interdependent assets and liabilities, which are assigned 0% required stable funding and available stable
funding factors in the NSFR calculation, is key because the interdependency is judged by national discretion
and could drive significant differences in ratios across banks. The disclosures also will describe drivers of
changes in the NSFR categories across reporting periods, which should help investors understand how a
bank’s NSFR has changed over time.
Bank Transparency
Last Tuesday, the Basel Committee on Banking Supervision finalized standards for bank disclosure of its net
stable funding ratio (NSFR) calculations. The disclosure standards are positive for creditors of internationally
active banks because they will improve transparency into bank funding, allowing investors to assess the
adequacy and reliability of funding for a bank’s least-liquid assets, including loans.
The disclosure template provides detailed information on available stable funding and required stable
funding, including residual maturity of assets and liabilities, and it is aligned with disclosure standards for
the complementary and shorter-term liquidity coverage ratio (LCR). NSFR disclosure standards will be
required beginning with a bank’s first reporting period after 1 January 2018.
The NSFR disclosure requirements will form part of the Basel capital and liquidity framework required Pillar
3 disclosures. These disclosures provide additional financial transparency along with periodic financial
statements and are an important contributor to market discipline. Many large, internationally active banks
already disclose NSFR-related data, so many banks will likely adopt this disclosure template before 2018.
In addition to providing transparency on the stability and duration of bank funding, NSFR disclosures will
improve the funding comparability of international banks across jurisdictions. Comparisons can be
challenging, owing to differences in accounting standards or national implementation of global standards
such as the Basel framework. Also, the NSFR template will improve existing funding disclosures by banks of
asset and liability maturities by showing maturities in a standardized manner across the balance sheet and
on a weighted-amount basis.
Detailed NSFR disclosure is positive for bank investors evaluating a bank’s liquidity and stable funding
position since the ratio is distinct from the LCR, measuring a different type of funding risk. The LCR
measures whether banks hold enough high-quality liquid assets (HQLA) that could be liquidated to cover
stressed cash outflows (e.g., deposit outflows and maturing liabilities that cannot be rolled over) over a 30-
day period. The NSFR measures whether funding of longer duration adequately supports less liquid longerterm
assets such as loans.
The NSFR template aligns with the LCR disclosure template, which for investors provides some consistency
in evaluating short- and long-term liquidity risks. Both, for example, require disclosure of stable and less
stable retail deposits, and wholesale deposits used for operational purposes. These disclosures are used to
calculate stressed cash outflows in the LCR, and in the NSFR are categories of available stable funding.
The Basel Committee noted that in formulating the template, it balanced usability of disclosure with
“undesirable dynamics during stress.” Although the Basel Committee did not specify exactly how it achieved
the trade-off in the disclosure framework, this has likely restricted funding transparency to some degree.
In addition to a standardized reporting template, the NSFR disclosure standards require qualitative
disclosures that are important in evaluating a bank’s stable funding position. The disclosure of
interdependent assets and liabilities, which are assigned 0% required stable funding and available stable
funding factors in the NSFR calculation, is key because the interdependency is judged by national discretion
and could drive significant differences in ratios across banks. The disclosures also will describe drivers of
changes in the NSFR categories across reporting periods, which should help investors understand how a
bank’s NSFR has changed over time.
