OCC bulletin gives highlights of net stable funding ratio rule

Key provisions of a final rule creating a net stable funding ratio (NSFR) and requirement for certain banks with more than $100 billion in total consolidated assets – and set to take effect July 1 – are highlighted in a bulletin issued Wednesday by the Office of the Comptroller of the Currency (OCC).

The final rule was adopted in October by the OCC, Federal Deposit Insurance Corp. (FDIC), and Federal Reserve, and published just recently in the Federal Register. It creates a net stable funding requirement intended to ensure banks’ ability to withstand disruptions to their regular sources of funding without compromising their liquidity position or contributing to financial system instability.

The NSFR measures the stability of a covered company’s funding profile over a one-year time horizon and complements the liquidity coverage ratio (LCR) rule, which was finalized in 2014. As noted by the OCC, it applies to U.S. depository institution holding companies, depository institutions, or U.S. intermediate holding companies of foreign banking organizations with more than $100 billion in total consolidated assets that meet certain asset size and risk factor requirements.

The OCC said the final rule:

  • implements a minimum stable funding requirement designed to reduce the likelihood that disruptions to a covered company’s regular sources of funding will compromise its liquidity position;
  • requires a covered company subject to the full NSFR to maintain a ratio of “available stable funding” to “required stable funding” of at least 1.0 on an ongoing basis;
  • measures “available stable funding” by evaluating the stability of a banking organization’s funding sources;
  • measures “required stable funding” by evaluating the liquidity characteristics of a banking organization’s assets, derivatives, and off-balance-sheet exposures;
  • requires a covered company to notify its appropriate federal banking agency supervisor of a shortfall or potential shortfall within 10 business days of any event that caused or would cause the covered company’s NSFR to fall below the minimum requirement and to submit a remediation plan;
  • requires a covered company that is a depository institution holding company, U.S. intermediate holding company, or covered nonbank company to publicly disclose its consolidated NSFR and certain components of its NSFR in a standardized format on a quarterly basis.