Final net stable funding rule slated for publication in Federal Register; takes effect July 1

Federal banking regulators’ October final rule creating a quantitative metric – the net stable funding ratio (NSFR) –  is finally slated to be published, this Thursday, in the Federal Register.

Approved by the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of the Currency (OCC) with a July 1 effective date, 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, together with certain depository institution subsidiaries, according to the notice.

The NSFR is intended to measure the stability of the funding profile of certain large banking organizations; it requires these banking organizations to maintain minimum amounts of stable funding to support their assets, commitments, and derivatives exposures over a one-year time horizon, the notice states. The NSFR increases in stringency based on risk-based measures of the top-tier covered company, it states.

Regulators said the aim of the NSFR is to reduce the likelihood that disruptions to a banking organization’s regular sources of funding will compromise its liquidity position; promote effective liquidity risk management; and support the ability of banking organizations to provide financial intermediation to businesses and households across a range of market conditions.

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.

The rule was proposed in 2016 and approved last October by all three agencies, though the final reg drew “no” votes from FDIC Board Member (and former chairman) Martin Gruenberg and Fed Gov. Lael Brainard.

Notice of final rule (for Federal Register)