Despite attracting recent controversy from some—who have noted that if it had been in effect earlier in 2020, initial financial stress from the COVID-19 pandemic would have been worse—the long-anticipated net stable funding ratio (NSFR) rule has been finalized by the Agencies. The NSFR was developed after the 2008 financial crisis revealed that an over-reliance on short-term, less-stable funding sources could make large banking organizations more susceptible to funding changes. The NSFR rule is a quantitative liquidity standard that was originally adopted in October 2014 by the BCBS as part of the Basel III regime and was first proposed by the Agencies in 2016. The proposed and final NSFR rules differ from the standard developed by the BCBS based on US-market specific factors.

The full NSFR rule will apply to nine of the largest US banking organizations and to their consolidated subsidiaries that are depository institutions with $10 billion or more in total consolidated assets. A modified version of the NSFR rule will apply to eleven other depository institution holding companies with assets of at least $100 billion, including certain intermediate holding companies formed by foreign banking organizations (FBOs) under FRB's Regulation YY, as well as certain of their consolidated subsidiaries that are depository institutions with $10 billion or more in total consolidated assets. The NSFR rule will not apply to FBOs or US branches and agencies of FBOs.

The NSFR rule generally is similar to the proposal from May 2016, but, most notably, the scope of the NSFR rule has been recalibrated to be consistent with the Agencies' 2019 tailoring rule. Additionally, FRB indicated that it intends to propose changes to the FR 2052a to incorporate the reporting requirements under the NSFR rule. The NSFR rule will take effect on July 1, 2021.

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Originally published in REVERSEinquiries: Volume 3, Issue 9.
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