# FDIC FIL-98-2020: Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/FDIC_FIL20098

## Section

- **Citation:** FDIC FIL-98-2020
- **Heading:** Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** FDIC Financial Institution Letters / Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements

## Text

9120
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 50
[Docket ID OCC–2014–0029]
RIN 1557–AD97
FEDERAL RESERVE SYSTEM
12 CFR Part 249
[Regulation WW; Docket No. R–1537]
RIN 7100–AE 51
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 329
RIN 3064–AE 44
Net Stable Funding Ratio: Liquidity
Risk Measurement Standards and
Disclosure Requirements
AGENCY: Office of the Comptroller of the
Currency, Department of the Treasury;
Board of Governors of the Federal
Reserve System; and Federal Deposit
Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the agencies) are adopting
a final rule that implements a stable
funding requirement, known as the net
stable funding ratio (NSFR), for certain
large banking organizations. The final
rule establishes a quantitative metric,
the NSFR, to measure the stability of the
funding profile of certain large banking
organizations and 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 NSFR is designed 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. The NSFR supports
financial stability by requiring banking
organizations to fund their activities
with stable sources of funding on an
ongoing basis, reducing the possibility
that funding shocks would substantially
increase distress at individual banking
organizations
nking organizations to provide
financial intermediation to businesses
and households across a range of market
conditions. The NSFR supports
financial stability by requiring banking
organizations to fund their activities
with stable sources of funding on an
ongoing basis, reducing the possibility
that funding shocks would substantially
increase distress at individual banking
organizations. 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, each with total
consolidated assets of $100 billion or
more, together with certain depository
institution subsidiaries (together,
covered companies). Under the final
rule, the NSFR requirement increases in
stringency based on risk-based measures
of the top-tier covered company. 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 final rule also amends
certain definitions in the agencies’
liquidity coverage ratio rule that are also
applicable to the NSFR.
DATES: Effective Date: July 1, 2021.
FOR FURTHER INFORMATION CONTACT:
OCC: Christopher McBride, Director,
James Weinberger, Technical Expert, or
Ang Middleton, Bank Examiner (Risk
Specialist), (202) 649–6360, Treasury &
Market Risk Policy; Dave Toxie, Capital
Markets Lead Expert, (202) 649–6833;
Patrick T. Tierney, Assistant Director,
Henry Barkhausen, Counsel, or Daniel
Perez, Counsel, Chief Counsel’s Office,
uly 1, 2021.
FOR FURTHER INFORMATION CONTACT:
OCC: Christopher McBride, Director,
James Weinberger, Technical Expert, or
Ang Middleton, Bank Examiner (Risk
Specialist), (202) 649–6360, Treasury &
Market Risk Policy; Dave Toxie, Capital
Markets Lead Expert, (202) 649–6833;
Patrick T. Tierney, Assistant Director,
Henry Barkhausen, Counsel, or Daniel
Perez, Counsel, Chief Counsel’s Office,
(202) 649–5490; for persons who are
deaf or hard of hearing, TTY, (202) 649–
5597; Office of the Comptroller of the
Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Juan Climent, Assistant
Director, (202) 872–7526, Kathryn
Ballintine, Manager, (202) 452–2555, J.
Kevin Littler, Lead Financial Institution
Policy Analyst, (202) 475–6677, Michael
Ofori-Kuragu, Senior Financial
Institution Policy Analyst II, (202) 475–
6623 or Christopher Powell, Senior
Financial Institution Policy Analyst II,
(202) 452–3442, Division of Supervision
and Regulation; Benjamin W.
McDonough, Associate General Counsel,
(202) 452–2036, Steve Bowne, Senior
Counsel, (202) 452–3900, Jason Shafer,
Senior Counsel, (202) 728–5811, Laura
Bain, Counsel, (202) 736–5546, or
Jeffery Zhang, Attorney, (202) 736–1968,
Legal Division, Board of Governors of
the Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Bobby R. Bean, Associate
Director, bbean@fdic.gov; Brian Cox,
Chief, Capital Markets Strategies
Section, brcox@fdic.gov; Eric Schatten,
Senior Policy Analyst, eschatten@
fdic.gov; Andrew Carayiannis, Senior
Policy Analyst, acarayiannis@fdic.gov;
Kyle McCormick, Capital Markets Policy
Analyst, kmccormick@fdic.gov; Capital
Markets Branch, Division of Risk
Management Supervision, (202) 898–
6888; Gregory S. Feder, Counsel,
gfeder@fdic.gov, Andrew B. Williams, II,
Counsel, and williams@fdic.gov, or
Suzanne J
; Eric Schatten,
Senior Policy Analyst, eschatten@
fdic.gov; Andrew Carayiannis, Senior
Policy Analyst, acarayiannis@fdic.gov;
Kyle McCormick, Capital Markets Policy
Analyst, kmccormick@fdic.gov; Capital
Markets Branch, Division of Risk
Management Supervision, (202) 898–
6888; Gregory S. Feder, Counsel,
gfeder@fdic.gov, Andrew B. Williams, II,
Counsel, and williams@fdic.gov, or
Suzanne J. Dawley, Counsel, sudawley@
fdic.gov, Supervision, Legislation &
Enforcement Branch, Legal Division,
Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC
20429. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (800) 925–4618.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Background
III. Overview of the Proposed Rule and
Proposed Scope of Application
A. The Proposed Stable Funding
Requirement
B. Revised Scope of Application
IV. Summary of Comments and Overview of
Significant Changes to the Proposals
V. The Final Rule’s Purpose, Design, Scope
of Application, and Minimum
Requirements
A. Purpose of the Final Rule
B. Comments on the Need for the NSFR
Requirement
C. The NSFR’s Conceptual Framework,
Design, and Calibration
1. Use of an Aggregate Balance Sheet
Measure and Weightings
2. Use of a Simplified and Standardized
Point-in-Time Metric
3. Use of a Time Horizon
4. Stress Perspectives and Using Elements
From the LCR Rule
5. Analytical Basis of Factor Calibrations
and Supervisory Considerations
D. Adjusting Calibration for the U.S.
Implementation of the NSFR
E. NSFR Scope and Minimum Requirement
Under the Final Rule—Full and Reduced
NSFR
1. Proposed Minimum Requirement and
the Tailoring Final Rule
2. Applicability of the Final Rule to U.S.
Intermediate Holding Companies and
Use of the Risk-Based Indicators
3. NSFR Minimum Requirements Under
the Final Rule: Applicability and
Calibration
4. Applicability to Depository Institution
Subsidiaries
VI. Definitions
A. Revisions to Existing Definitions
1
—Full and Reduced
NSFR
1. Proposed Minimum Requirement and
the Tailoring Final Rule
2. Applicability of the Final Rule to U.S.
Intermediate Holding Companies and
Use of the Risk-Based Indicators
3. NSFR Minimum Requirements Under
the Final Rule: Applicability and
Calibration
4. Applicability to Depository Institution
Subsidiaries
VI. Definitions
A. Revisions to Existing Definitions
1. Revised Definitions for Which the
Agencies Received no Comments
2. Revised Definitions for Which the
Agencies Received Comments
3. Other Definitions and Requirements for
Which the Agencies Received Comments
4. Other Definitions and Requirements for
Which the Agencies Did Not Receive
Comments
B. New Definitions
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1 See ‘‘Net Stable Funding Ratio: Liquidity Risk
Measurement Standards and Disclosure
Requirements,’’ 81 FR 35124 (June 1, 2016).
2 See Proposed Changes to Applicability
Thresholds for Regulatory Capital and Liquidity
Requirements, 83 FR 66024 (December 21, 2018)
(domestic tailoring proposal); Changes to
Applicability Thresholds for Regulatory Capital
Requirements for Certain U.S. Subsidiaries of
Foreign Banking Organizations and Application of
Liquidity Requirements to Foreign Banking
Organizations, Certain U.S. Depository Institution
Holding Companies, and Certain Depository
Institution Subsidiaries, 84 FR 24296 (May 24,
2019) (FBO tailoring proposal). The agencies
indicated that comments regarding the NSFR
proposed rule would be addressed in the context of
a final rule to adopt a NSFR requirement for large
U.S. banking organizations and foreign banking
organizations.
3 See further discussion of balance sheet funding
in section V.C below
nd Certain Depository
Institution Subsidiaries, 84 FR 24296 (May 24,
2019) (FBO tailoring proposal). The agencies
indicated that comments regarding the NSFR
proposed rule would be addressed in the context of
a final rule to adopt a NSFR requirement for large
U.S. banking organizations and foreign banking
organizations.
3 See further discussion of balance sheet funding
in section V.C below.
4 See Senior Supervisors Group, Risk
Management Lessons from the Global Banking
Crisis of 2008, (October 21, 2009), available at
https://www.newyorkfed.org/medialibrary/media/
newsevents/news/banking/2009/SSG_report.pdf.
1. New Definitions for Which the Agencies
Received no Comments
2. New Definitions for Which the Agencies
Received Comments
VII. NSFR Requirement Under the Final Rule
A. Rules of Construction
1. Balance-Sheet Values
2. Netting of Certain Transactions
3. Treatment of Securities Received in an
Asset Exchange by a Securities Lender
B. Determining Maturity
C. Available Stable Funding
1. Calculation of the ASF Amount
2. Characteristics for Assignment of ASF
Factors
3. Categories of ASF Factors
D. Required Stable Funding
1. Calculation of the RSF Amount
2. Characteristics for Assignment of RSF
Factors
3. Categories of RSF Factors for
Unencumbered Assets and Commitments
4. Treatment of Rehypothecated Off-
Balance Sheet Assets
E. Derivative Transactions
1. Scope of Derivatives Transactions
Subject to § ll.107 of the Final Rule
2. Current Net Value Component
3. Initial Margin Received by a Covered
Company
4. Customer Cleared Derivative
Transactions
5. Initial Margin Component
6. Future Value Component
7. Comments on the Effect on Capital
Markets and Commercial End Users
8. Derivatives RSF Amount Calculation
9. Derivatives RSF Amount Numerical
Example
F. NSFR Consolidation Limitations
G. Treatment of Certain Facilities
H. Interdependent Assets and Liabilities
VIII. Net Stable Funding Ratio Shortfall
IX. Disclosure Requirements
A
5. Initial Margin Component
6. Future Value Component
7. Comments on the Effect on Capital
Markets and Commercial End Users
8. Derivatives RSF Amount Calculation
9. Derivatives RSF Amount Numerical
Example
F. NSFR Consolidation Limitations
G. Treatment of Certain Facilities
H. Interdependent Assets and Liabilities
VIII. Net Stable Funding Ratio Shortfall
IX. Disclosure Requirements
A. NSFR Public Disclosure Requirements
B. Quantitative Disclosure Requirements
1. Disclosure of ASF Components
2. Disclosure of RSF Components
C. Qualitative Disclosure Requirements
D. Frequency and Timing of Disclosure
X. Impact Assessment
A. Impact on Funding
B. Costs and Benefits of an RSF Factor for
Level 1 HQLA, Both Held Outright and
as Collateral for Short-Term Lending
Transactions
C. Response to Comments
XI. Effective Dates and Transitions
A. Effective Dates
B. Transitions
1. Initial Transitions for Banking
Organizations That Become Subject to
NSFR Rule After the Effective Date
2. Transitions for Changes to an NSFR
Requirement
3. Reservation of Authority To Extend
Transitions
4. Cessation of Applicability
XII. Administrative Law Matters
A. Congressional Review Act
B. Plain Language
C. Regulatory Flexibility Act
D. Riegle Community Development and
Regulatory Improvement Act of 1994
E. Paperwork Reduction Act
F. OCC Unfunded Mandates Reform Act of
1995 Determination
I. Introduction
The Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies) are adopting in final form the
agencies’ 2016 proposal to implement a
net stable funding ratio (NSFR)
requirement (the proposed rule), with
certain adjustments.1 The agencies also
are finalizing two proposals released
subsequent to issuance of the proposed
rule to revise the criteria for
determining the scope of application of
the NSFR requirement (tailoring
proposals).2 The Board will issue a
se
ng in final form the
agencies’ 2016 proposal to implement a
net stable funding ratio (NSFR)
requirement (the proposed rule), with
certain adjustments.1 The agencies also
are finalizing two proposals released
subsequent to issuance of the proposed
rule to revise the criteria for
determining the scope of application of
the NSFR requirement (tailoring
proposals).2 The Board will issue a
separate proposal for notice and
comment to amend its information
collection under its Complex Institution
Liquidity Monitoring Report (FR 2052a)
to collect information and data related
to the requirements of the final rule.
The final rule establishes a
quantitative metric, the NSFR, to
measure the stability of the funding
profile of large U.S. banking
organizations, U.S. intermediate holding
companies of foreign banking
organizations, and their depository
institution subsidiaries with $10 billion
or more in total consolidated assets. The
final rule also requires these banking
organizations to maintain minimum
amounts of stable funding to support
their assets, commitments, and
derivatives exposures.3 By requiring
banking organizations to maintain a
stable funding profile, the final rule
reduces liquidity risk in the financial
sector and provides for a safer and more
resilient financial system.
Sections II and III of this
Supplementary Information section
provide background on the agencies’
proposed rule and the tailoring
proposals (together, the proposals).
Section IV provides an overview of
comments received on the proposals
and significant changes to the proposals
under this final rule. Section V
describes the final rule’s purpose,
design, scope of application, and
minimum requirements. The discussion
of the final rule in sections VI through
IX describes amendments to certain
applicable definitions, the calculation of
the NSFR, requirements imposed on a
banking organization that fails to meet
its minimum NSFR requirement, and
the public disclosure requirements for
U.S
Section V
describes the final rule’s purpose,
design, scope of application, and
minimum requirements. The discussion
of the final rule in sections VI through
IX describes amendments to certain
applicable definitions, the calculation of
the NSFR, requirements imposed on a
banking organization that fails to meet
its minimum NSFR requirement, and
the public disclosure requirements for
U.S. depository institution holding
companies and U.S. intermediate
holding companies subject to the final
rule. Sections X through XII describe the
agencies’ impact assessment, the
effective date and transitions under the
final rule, and certain administrative
matters.
II. Background
The 2007–2009 financial crisis
revealed significant weaknesses in
banking organizations’ liquidity risk
management and liquidity positions,
including how banking organizations
managed their liabilities to fund their
assets in light of the risks inherent in
their on-balance sheet assets and off-
balance sheet commitments.4 The 2007–
2009 financial crisis also revealed an
overreliance on short-term, less-stable
funding, and demonstrated the
vulnerability of large and
internationally active banking
organizations to funding shocks. For
example, weaknesses in funding
management at many banking
organizations made them vulnerable to
contractions in funding supply, and
they had difficulties renewing short-
term funding that they had used to
support longer term or illiquid assets.
As access to funding became limited
and asset prices fell, many banking
organizations faced an increased
possibility of default and failure. To
stabilize the global financial markets,
governments and central banks around
the world provided significant levels of
support to these institutions in the form
of liquidity facilities and capital
injections.
In response to the 2007–2009
financial crisis, the Basel Committee on
Banking Supervision (BCBS) established
two international liquidity standards
sibility of default and failure. To
stabilize the global financial markets,
governments and central banks around
the world provided significant levels of
support to these institutions in the form
of liquidity facilities and capital
injections.
In response to the 2007–2009
financial crisis, the Basel Committee on
Banking Supervision (BCBS) established
two international liquidity standards. In
January 2013, the BCBS established a
short-term liquidity metric, the liquidity
coverage ratio (LCR), to mitigate the
risks arising when banking
organizations face significantly
increased net cash outflows in a period
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5 See ‘‘Basel III: The Liquidity Coverage Ratio and
liquidity risk monitoring tools’’ at https://
www.bis.org/publ/bcbs238.htm.
6 See ‘‘Basel III: the net stable funding ratio’’ at
https://www.bis.org/bcbs/publ/d295.htm. The BCBS
relatedly published the net stable funding ratio
disclosure standards published by the BCBS in June
2015. See ‘‘Basel III: the net stable funding ratio’’
(October 2014), available at http://www.bis.org/
bcbs/publ/d295.pdf; ‘‘Net Stable Funding Ratio
disclosure standards’’ (June 2015), available at
http://www.bis.org/bcbs/publ/d324.pdf.
7 12 CFR part 50 (OCC); 12 CFR part 249 (Board);
12 CFR part 329 (FDIC). See also ‘‘Liquidity
Coverage Ratio: Liquidity Risk Measurement
Standards,’’ 79 FR 61440 (October 10, 2014).
8 12 U.S.C. 5365.
9 See 12 CFR part 252. See also ‘‘Enhanced
Prudential Standards for Bank Holding Companies
and Foreign Banking Organizations,’’ 79 FR 17240
(March 27, 2014)
://www.bis.org/bcbs/publ/d324.pdf.
7 12 CFR part 50 (OCC); 12 CFR part 249 (Board);
12 CFR part 329 (FDIC). See also ‘‘Liquidity
Coverage Ratio: Liquidity Risk Measurement
Standards,’’ 79 FR 61440 (October 10, 2014).
8 12 U.S.C. 5365.
9 See 12 CFR part 252. See also ‘‘Enhanced
Prudential Standards for Bank Holding Companies
and Foreign Banking Organizations,’’ 79 FR 17240
(March 27, 2014). The Economic Growth,
Regulatory Relief, and Consumer Protection Act,
which became law on May 24, 2018, subsequently
raised the asset thresholds for applicability of
enhanced prudential standards under section 165 of
the Dodd-Frank Act. See Public Law 115–174, 132
Stat. 1296 (2018). The Board amended the scope of
application of these requirements in October 2019.
See 84 FR 59032, (November 1, 2019).
10 During the same period, the Board
implemented requirements designed to enhance the
capital positions and loss-absorbing capabilities for
global systemically important banking organizations
(GSIBs), which can also have the effect of
improving the funding profiles of these firms. The
Board adopted a risk-based capital surcharge for
GSIBs in the United States that is calculated based
on a bank holding company’s risk profile, including
its reliance on short-term wholesale funding (the
GSIB capital surcharge rule). See 12 CFR 217
subpart H. The Board also adopted a total loss-
absorbing capacity (TLAC) requirement and a long-
term debt requirement (LTD) requirement (the
TLAC/LTD rule) for U.S. GSIBs and the U.S.
operations of certain foreign GSIBs, which requires
these firms and operations to have sufficient
amounts of equity and eligible long-term debt to
improve their ability to absorb significant losses
and withstand financial stress and to improve their
resolvability in the event of failure or material
distress. See 12 CFR 252 subparts G and P.
11 See ‘‘Net Stable Funding Ratio: Liquidity Risk
Measurement Standards and Disclosure
Requirements,’’ 81 FR 35124 (June 1, 2016)
o have sufficient
amounts of equity and eligible long-term debt to
improve their ability to absorb significant losses
and withstand financial stress and to improve their
resolvability in the event of failure or material
distress. See 12 CFR 252 subparts G and P.
11 See ‘‘Net Stable Funding Ratio: Liquidity Risk
Measurement Standards and Disclosure
Requirements,’’ 81 FR 35124 (June 1, 2016).
12 The BCBS developed the Basel NSFR standard
as a longer-term balance sheet funding metric to
complement the Basel LCR standard’s short-term
liquidity stress metric. In developing the Basel
NSFR standard, the agencies and their international
counterparts in the BCBS considered a number of
possible funding metrics. For example, the BCBS
considered the traditional ‘‘cash capital’’ measure,
which compares the amount of a firm’s long-term
and stable sources of funding to the amount of the
firm’s illiquid assets. The BCBS found that this cash
capital measure failed to account for material
funding risks, such as those related to off-balance
sheet commitments and certain on-balance sheet
short-term funding and lending mismatches. The
Basel NSFR standard incorporates consideration of
these and other funding risks, as does this final
rule.
13 For certain depository institution holding
companies with $50 billion or more, but less than
$250 billion, in total consolidated assets and less
than $10 billion in on-balance sheet foreign
exposure, the Board separately proposed a modified
NSFR requirement.
14 Under the Board’s proposed modified NSFR
requirement, a depository institution holding
company subject to a modified NSFR would have
been required to maintain an NSFR of 1.0 but
would have calculated such ratio using a lower
minimum RSF amount in the denominator of the
ratio, equivalent to 70 percent of the holding
company’s RSF amount as calculated under the
agencies’ proposed rule
t.
14 Under the Board’s proposed modified NSFR
requirement, a depository institution holding
company subject to a modified NSFR would have
been required to maintain an NSFR of 1.0 but
would have calculated such ratio using a lower
minimum RSF amount in the denominator of the
ratio, equivalent to 70 percent of the holding
company’s RSF amount as calculated under the
agencies’ proposed rule.
15 Subsequent to the issuance of the proposed
rule, certain foreign banking organizations with
substantial operations in the United States were
required to form or designate U.S. intermediate
holding companies. The scope of application under
the proposed rule would have included certain U.S.
of stress (Basel LCR standard).5 As a
complement to the LCR, the BCBS in
October 2014 established the net stable
funding ratio standard (Basel NSFR
standard) to mitigate the risks presented
by banking organizations supporting
their assets with insufficiently stable
funding; the Basel NSFR standard
requires banking organizations to
maintain a stable funding profile over a
longer, one-year time horizon.6 The
agencies have been, and remain,
actively involved in the BCBS’
international efforts, including the
continued development and monitoring
of the BCBS’s framework for liquidity.
Following the 2007–2009 financial
crisis, the agencies implemented several
requirements designed to improve the
largest and most complex banking
organizations’ liquidity positions and
liquidity risk management practices. In
2014, the agencies adopted the LCR rule
to improve the banking sector’s
resiliency to a short-term liquidity stress
by requiring large U.S
’s framework for liquidity.
Following the 2007–2009 financial
crisis, the agencies implemented several
requirements designed to improve the
largest and most complex banking
organizations’ liquidity positions and
liquidity risk management practices. In
2014, the agencies adopted the LCR rule
to improve the banking sector’s
resiliency to a short-term liquidity stress
by requiring large U.S. banking
organizations to hold a minimum
amount of unencumbered high-quality
liquid assets (HQLA) that can be readily
converted into cash to meet projected
net cash outflows over a prospective 30
calendar-day stress period.7 In addition,
pursuant to section 165 of the Dodd-
Frank Wall Street Reform and Consumer
Protection Act 8 (Dodd-Frank Act) and
in consultation with the OCC and FDIC,
the Board adopted the enhanced
prudential standards rule, which
established general risk management,
liquidity risk management, and stress
testing requirements for certain bank
holding companies and foreign banking
organizations.9 These reforms in the
post-crisis regulatory framework did not
include a requirement that directly
addresses the relationship between a
banking organization’s funding profile
and its composition of assets and off-
balance commitments.10
III. Overview of the Proposed Rule and
Proposed Scope of Application
A. The Proposed Stable Funding
Requirement
In June 2016, the agencies invited
comment on a proposal to implement a
net stable funding requirement for the
U.S. banking organizations that were
subject to the LCR rule at that time.11
The proposed rule was generally
consistent with the Basel NSFR
standard, with adjustments to reflect the
characteristics of U.S. banking
organizations, markets, and other U.S
Stable Funding
Requirement
In June 2016, the agencies invited
comment on a proposal to implement a
net stable funding requirement for the
U.S. banking organizations that were
subject to the LCR rule at that time.11
The proposed rule was generally
consistent with the Basel NSFR
standard, with adjustments to reflect the
characteristics of U.S. banking
organizations, markets, and other U.S.
specific considerations.12
The proposed rule would have
required a banking organization to
maintain an amount of available stable
funding (ASF) equal to or greater than
the banking organization’s projected
minimum funding needs, or required
stable funding (RSF), over a one-year
time horizon.13 A banking
organization’s NSFR would have been
expressed as the ratio of its ASF amount
to its RSF amount, with a banking
organization required to maintain a
minimum NSFR of 1.0.14
Under the proposed rule, a banking
organization’s ASF amount would have
been calculated as the sum of the
carrying values of the banking
organization’s liabilities and regulatory
capital, each multiplied by a
standardized weighting (ASF factor)
ranging from zero to 100 percent to
reflect the relative stability of such
liabilities and capital over a one-year
time horizon. Similarly, a banking
organization’s minimum RSF amount
would have been calculated as (1) the
sum of the carrying values of its assets,
each multiplied by a standardized
weighting (RSF factor) ranging from zero
to 100 percent to reflect the relative
need for funding over a one-year time
horizon based on the liquidity
characteristics of the asset, plus (2) RSF
amounts based on the banking
organization’s committed facilities and
derivative exposures. The proposed rule
also would have included public
disclosure requirements for depository
institution holding companies subject to
the proposed rule.
B
100 percent to reflect the relative
need for funding over a one-year time
horizon based on the liquidity
characteristics of the asset, plus (2) RSF
amounts based on the banking
organization’s committed facilities and
derivative exposures. The proposed rule
also would have included public
disclosure requirements for depository
institution holding companies subject to
the proposed rule.
B. Revised Scope of Application
The proposed rule would have
applied to: (1) Bank holding companies,
savings and loan holding companies
without significant commercial or
insurance operations, and depository
institutions that, in each case, have $250
billion or more in total consolidated
assets or $10 billion or more in on-
balance sheet foreign exposure; and (2)
depository institutions with $10 billion
or more in total consolidated assets that
are consolidated subsidiaries of such
bank holding companies and savings
and loan holding companies. In
addition, the Board proposed a modified
NSFR requirement that would have
applied to certain depository institution
holding companies with total
consolidated assets of $50 billion or
more.15
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bank holding company subsidiaries of foreign
banking organizations.
16 Public Law 115–174, 132 Stat. 1296 (2018).
17 The tailoring proposals also would have
removed the LCR rule’s modified LCR requirement
that at the time applied to certain depository
institution holding companies with total
consolidated assets of $50 billion or more.
18 84 FR 59230 (November 1, 2019). In a change
from the tailoring proposals, the tailoring final rule
applied LCR requirements to a U.S
w 115–174, 132 Stat. 1296 (2018).
17 The tailoring proposals also would have
removed the LCR rule’s modified LCR requirement
that at the time applied to certain depository
institution holding companies with total
consolidated assets of $50 billion or more.
18 84 FR 59230 (November 1, 2019). In a change
from the tailoring proposals, the tailoring final rule
applied LCR requirements to a U.S. intermediate
holding company of a foreign banking organization
on the basis of risk-based indicators measured for
the U.S intermediate holding company and not the
foreign banking organization’s combined U.S.
operations.
19 A ‘‘top-tier banking organization’’ means the
top-tier bank holding company, U.S. intermediate
holding company, savings and loan holding
company, or depository institution domiciled in the
United States.
20 The tailoring final rule noted that comments
regarding the NSFR proposal would be addressed
in the context of any final rule to adopt a NSFR
requirement for large U.S. banking organizations
and U.S. intermediate holding companies. 84 FR at
59235.
21 Summaries of these meetings are available on
the agencies’ public websites. See https://
www.regulations.gov/docket?D=OCC-2014-0029
(OCC), https://www.federalreserve.gov/apps/foia/
ViewComments.aspx?doc_id=R%2D1537&doc_
ver=1 (Board), and https://www.fdic.gov/
regulations/laws/federal/2016/2016-net_stable-
funding-ratio-3064-ae44.html (FDIC).
22 The European Union (EU) implementation of
the NSFR requirement, effective 2021, includes
targeted adjustments from the Basel NSFR standard
in order to reflect EU specificities generally
consistent with the EU implementation of the Basel
LCR standard. The EU’s NSFR requirements also
include targeted adjustments to support sovereign
bond markets. See Regulation (EU) 2019/876 of the
European Parliament and the Council, May 20,
2019, available at https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32019R0876 (EU
NSFR rule)
order to reflect EU specificities generally
consistent with the EU implementation of the Basel
LCR standard. The EU’s NSFR requirements also
include targeted adjustments to support sovereign
bond markets. See Regulation (EU) 2019/876 of the
European Parliament and the Council, May 20,
2019, available at https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32019R0876 (EU
NSFR rule).
23 The agencies received a number of comments
that were not specifically responsive to the
proposed rule but more generally requested that the
agencies assess the combined costs of post-crisis
regulations on the availability of credit and the
economy.
Subsequent to the proposed rule, the
agencies published the tailoring
proposals to modify the application of
the LCR rule and the proposed rule
consistent with considerations and
factors set forth under section 165 of the
Dodd-Frank Act, as amended by the
Economic Growth, Regulatory Relief,
and Consumer Protection Act
(EGRRCPA).16 As part of the tailoring
proposals, the agencies proposed to
establish four risk-based categories for
determining applicability of
requirements under the LCR rule and
the proposed rule. The requirements
would have increased in stringency
based on measures of size, cross-
jurisdictional activity, weighted short-
term wholesale funding, nonbank assets,
and off-balance sheet exposures (risk-
based indicators). In addition, the
tailoring proposals would have removed
the Board’s proposed modified NSFR
requirement for certain depository
institution holding companies.17
In October 2019, the agencies adopted
a final rule (tailoring final rule) that
amended the scope of application of the
LCR rule so that it applies to certain
U.S. banking organizations and U.S
et exposures (risk-
based indicators). In addition, the
tailoring proposals would have removed
the Board’s proposed modified NSFR
requirement for certain depository
institution holding companies.17
In October 2019, the agencies adopted
a final rule (tailoring final rule) that
amended the scope of application of the
LCR rule so that it applies to certain
U.S. banking organizations and U.S.
intermediate holding companies of
foreign banking organizations, each with
$100 billion or more in total
consolidated assets, together with
certain of their depository institution
subsidiaries.18 The tailoring final rule
applies LCR requirements on the basis
of the four risk-based categories
determined by the risk profile of the
top-tier banking organization, including
a depository institution that is not a
subsidiary of a depository institution
holding company.19 The effective date
of the revisions to the LCR rule’s scope
was December 31, 2019.20
IV. Summary of Comments and
Overview of Significant Changes to the
Proposals
The agencies received approximately
30 comments on the proposed rule, as
well as approximately 20 comments
related to the NSFR rule in response to
the tailoring proposals. Commenters
included U.S. and foreign banking
organizations, trade groups, public
interest groups, and other interested
parties. Agency staff also met with some
commenters at their request to discuss
their comments on the proposed rule
and the tailoring proposals.21 Although
many commenters supported the goal of
improving funding stability, many
commenters expressed concern
regarding the overall proposal and
criticized specific aspects of the
proposed rule.
A number of commenters argued that
the proposed rule was unnecessary
because it would target risks already
addressed by existing regulations, such
as the LCR rule. Other commenters
expressed concern regarding the design
and calibration of the proposed rule
ng stability, many
commenters expressed concern
regarding the overall proposal and
criticized specific aspects of the
proposed rule.
A number of commenters argued that
the proposed rule was unnecessary
because it would target risks already
addressed by existing regulations, such
as the LCR rule. Other commenters
expressed concern regarding the design
and calibration of the proposed rule.
These commenters requested
clarification on the conceptual
underpinnings of the NSFR, requested
additional quantitative support for the
proposed ASF and RSF factors, and
argued that the proposed rule did not
satisfy Administrative Procedure Act
(APA) requirements because it provided
insufficient support for its design and
calibration. Some commenters criticized
the proposed rule as not being
appropriately tailored for
implementation in the United States
and argued that the proposed rule was
more stringent than the Basel NSFR
standard such that it could disadvantage
U.S. banking organizations relative to
their foreign competitors. Relatedly,
certain commenters requested that the
agencies conform the final rule to the
European Union’s implementation of
the Basel NSFR standard (EU NSFR
rule) in order to minimize potential
adverse effects on U.S. banking
organizations.22
Some commenters expressed concern
that the proposed rule could result in
increased costs to banking organizations
and the financial system that would
exceed the proposed rule’s benefits.23
Specifically, some commenters argued
that the proposed rule could increase
funding and compliance costs, which
could cause banking organizations to
withdraw from or reduce the scale of
certain business activities with low
margins, including certain capital
markets-related activities. According to
the commenters, this could have the
effect of tightening credit and increasing
borrowing costs for households and
businesses in the United States
d rule could increase
funding and compliance costs, which
could cause banking organizations to
withdraw from or reduce the scale of
certain business activities with low
margins, including certain capital
markets-related activities. According to
the commenters, this could have the
effect of tightening credit and increasing
borrowing costs for households and
businesses in the United States.
Commenters also argued that the
funding and compliance costs of the
proposed rule could increase financial
stability risk by shifting certain financial
intermediation activities from the
banking sector to less regulated
‘‘shadow banking’’ channels.
Commenters also expressed concern
that the proposed rule could have pro-
cyclical effects, for example, by
incentivizing banking organizations to
restrict lending to improve their NSFRs
during periods of stress.
Additionally, many commenters
requested changes to specific elements
of the proposed rule. For example,
commenters recommended the agencies
assign higher ASF factors for certain
liabilities, such as certain types of
deposits, and lower RSF factors for
certain categories of assets and
committed facilities. Some commenters
recommended changes to the proposed
rule’s treatment of derivatives,
particularly the treatment of variation
margin and the treatment of potential
valuation changes in a derivatives
portfolio. In addition, a number of
commenters requested that the agencies
modify the proposed rule to assign zero
percent RSF and ASF factors to certain
assets and liabilities commenters
viewed as interdependent such that the
specific, identifiable assets are funded
by the specific, identifiable liabilities of
an equal or similar tenor and, therefore,
present little or minimal funding risk.
Finally, some commenters requested
that the agencies delay implementation
of the NSFR requirement to allow
banking organizations additional time to
build internal reporting systems and
comply with disclosure requirements
e
specific, identifiable assets are funded
by the specific, identifiable liabilities of
an equal or similar tenor and, therefore,
present little or minimal funding risk.
Finally, some commenters requested
that the agencies delay implementation
of the NSFR requirement to allow
banking organizations additional time to
build internal reporting systems and
comply with disclosure requirements.
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24 12 CFR 3.10(c)(4) (OCC); 12 CFR 217.10(c)(4)
(Board); 12 CFR 324.10(c)(4) (FDIC). In addition, the
final rule includes a new provision to exclude
assets received by a covered company as variation
margin under derivative transactions from the
treatment of rehypothecated assets that are off-
balance sheet assets in accordance with U.S.
generally accepted accounting principles (GAAP).
25 To conduct financial intermediation, banking
organizations obtain resources that are currently
surplus to the needs of certain parts of the economy
(funds providers) and lend them to other parts of
the economy that currently need those resources
(users of funds). Funds providers generally prefer
to supply their resources on a short-term basis with
easy access to their funds (liquid resources); for
example, household savings. Users of funds often
need these resources on a long-term basis and in
ways that make such resources difficult to convert
to cash (illiquid resources); for example, building
factories or capital for business growth. Maturity
and liquidity transformation refers to the process of
bridging the competing needs of funds providers
and users of funds.
26 ASF factors are described in section VII.C, RSF
factors are described in section VII.D, and the
derivatives RSF amount is described in section
VII.E of this Supplementary Information section
s); for example, building
factories or capital for business growth. Maturity
and liquidity transformation refers to the process of
bridging the competing needs of funds providers
and users of funds.
26 ASF factors are described in section VII.C, RSF
factors are described in section VII.D, and the
derivatives RSF amount is described in section
VII.E of this Supplementary Information section.
27 Commenters provided examples, including the
LCR rule; the Board’s enhanced prudential
standards rule; the TLAC/LTD rule; the GSIB
capital surcharge rule (which includes a measure of
weighted short-term wholesale funding), SLR rule,
and other capital requirements; single counterparty
credit limits; mandatory clearing requirements and
margin requirements for non-cleared swaps and
non-cleared security-based swaps; and Board and
FDIC supervisory guidance relating to liquidity in
connection with resolution planning.
The agencies received a number of
comments requesting the agencies
reconsider the proposed rule’s scope of
application. Specifically, many
commenters argued that the proposed
thresholds for application were arbitrary
and insufficiently risk-sensitive and
requested the agencies further tailor the
scope of the proposed rule. The agencies
also received a number of comments on
the appropriateness of the revised scope
of application in the tailoring proposals.
As discussed throughout this
Supplementary Information section, the
final rule retains the general design for
the NSFR calculation and calibrates
minimum requirements to the risk
profiles of banking organizations in a
manner consistent with the tailoring
final rule. However, the final rule
includes a number of modifications,
including:
• The final rule assigns a zero percent
RSF factor to unencumbered level 1
liquid asset securities and certain short-
term secured lending transactions
backed by level 1 liquid asset securities
(see section VII.D of this Supplementary
Information section)
izations in a
manner consistent with the tailoring
final rule. However, the final rule
includes a number of modifications,
including:
• The final rule assigns a zero percent
RSF factor to unencumbered level 1
liquid asset securities and certain short-
term secured lending transactions
backed by level 1 liquid asset securities
(see section VII.D of this Supplementary
Information section).
• The final rule provides more
favorable treatment for certain affiliate
sweep deposits and non-deposit retail
funding (see section VII.C of this
Supplementary Information section).
• The final rule permits cash
variation margin to be eligible to offset
a covered company’s current exposures
under its derivatives transactions even if
it does not meet all of the criteria in the
agencies’ supplementary leverage ratio
rule (SLR rule).24 In addition, variation
margin received in the form of
rehypothecatable level 1 liquid asset
securities also would be eligible to offset
a covered company’s current exposures
(see section VII.E of this Supplementary
Information section).
• The final rule reduces the amount
of a covered company’s gross
derivatives liabilities that will be
assigned a 100 percent RSF factor (see
section VII.E of this Supplementary
Information section).
V. The Final Rule’s Purpose, Design,
Scope of Application, and Minimum
Requirements
A. Purpose of the Final Rule
The NSFR is designed to address risks
that are inherent in the business of
banking. Banking organizations perform
maturity and liquidity transformation,25
which is an important financial
intermediation process that contributes
to efficient resource allocation and
credit creation. To conduct maturity and
liquidity transformation and meet the
long-term credit needs of businesses and
households, banking organizations also
must address the short-term liquidity
preferences of funds providers. These
transformation activities create a certain
inherent level of risk to banking
organizations, the U.S
s that contributes
to efficient resource allocation and
credit creation. To conduct maturity and
liquidity transformation and meet the
long-term credit needs of businesses and
households, banking organizations also
must address the short-term liquidity
preferences of funds providers. These
transformation activities create a certain
inherent level of risk to banking
organizations, the U.S. financial system,
and the broader economy caused by
banking organizations’ potential
overreliance on unstable funding
sources relative to the composition of
their balance sheets. Such overreliance
could potentially result in the failure of
banking organizations, disruptions to
asset prices, and reduction in the
provision of credit to households and
businesses.
A banking organization may mitigate
these risks by having funding sources
that are appropriately stable over time.
Because short-term funding generally
tends to be less expensive than longer-
term funding, banking organizations
have incentives to fund their longer-
term or less-liquid assets with less
stable, shorter-term liabilities. While
this approach may benefit short-term
earnings, it may lead to imbalances
between how a banking organization
chooses to fund its assets and the
funding it may need to maintain the
assets over time, as well as increases in
liquidity and funding risk arising from
potential customer and counterparty
runs and a more interconnected
financial sector. In turn, this creates a
funding risk for banking organizations,
the financial system, and the broader
economy. The final rule requires large
banking organizations to avoid
excessively funding long-term and less-
liquid assets with short-term or less-
reliable funding and thus reduces the
likelihood that disruptions in a banking
organization’s regular funding sources
would compromise its funding stability
and liquidity position
banking organizations,
the financial system, and the broader
economy. The final rule requires large
banking organizations to avoid
excessively funding long-term and less-
liquid assets with short-term or less-
reliable funding and thus reduces the
likelihood that disruptions in a banking
organization’s regular funding sources
would compromise its funding stability
and liquidity position.
The final rule establishes a minimum
NSFR requirement that is applicable on
a consolidated basis to certain top-tier
banking organizations with total
consolidated assets of $100 billion or
more, together with certain depository
institution subsidiaries (together,
covered companies). Consistent with the
proposed rule, the final rule requires a
covered company to calculate an NSFR
based on the ratio of its ASF amount to
its RSF amount and maintain an NSFR
equal to or greater than 1.0 on an
ongoing basis.26 In addition, the final
rule, like the proposed rule, includes
public disclosure requirements for U.S.
depository institution holding
companies and U.S. intermediate
holding companies of foreign banking
organizations that are subject to the final
rule.
B. Comments on the Need for the NSFR
Requirement
Banking organizations have improved
their liquidity risk management
practices and liquidity positions since
the 2007–2009 financial crisis,
including by holding larger liquidity
buffers, avoiding excessive reliance on
very short-term unstable wholesale
funding sources, and improving their
internal controls and governance
structures surrounding liquidity risk
management. The NSFR requirement
aims to preserve these improvements
and help position covered companies to
act as resilient financial intermediaries
through potential future periods of
instability
iquidity
buffers, avoiding excessive reliance on
very short-term unstable wholesale
funding sources, and improving their
internal controls and governance
structures surrounding liquidity risk
management. The NSFR requirement
aims to preserve these improvements
and help position covered companies to
act as resilient financial intermediaries
through potential future periods of
instability. The agencies received a
number of comments arguing that the
proposed rule is unnecessary because
other elements of the agencies’
regulatory framework already
sufficiently address liquidity and
funding risk at covered companies.27
Some commenters also argued that the
agencies should not apply an NSFR
requirement because many covered
companies have improved their current
funding profiles relative to the period
leading up to the 2007–2009 financial
crisis. By contrast, one commenter
supported the proposed rule, asserting
that it would be an important
complement to the LCR rule because it
would address funding stability and
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28 Cash flow projections, liquidity stress testing,
and liquidity buffer requirements for certain
covered holding companies under the Board’s
enhanced prudential standards rule complement
the LCR rule by addressing cash flow risks with
additional firm-specific granularity and across
additional time horizons, including a one-year
planning horizon. These requirements do not
directly address balance sheet funding risks.
29 See 12 CFR 252.35 and 12 CFR 252.157
ffer requirements for certain
covered holding companies under the Board’s
enhanced prudential standards rule complement
the LCR rule by addressing cash flow risks with
additional firm-specific granularity and across
additional time horizons, including a one-year
planning horizon. These requirements do not
directly address balance sheet funding risks.
29 See 12 CFR 252.35 and 12 CFR 252.157.
30 The final rule reflects that regulatory capital
elements and long-term debt required under the
agencies’ regulatory capital rule, the Board’s GSIB
capital surcharge rule, and the TLAC/LTD rule
provide stable funding by virtue of the long-term or
perpetual tenor of such regulatory capital elements
and long-term debt. The Board’s GSIB capital
surcharge rule and the tailoring final rule include
a measure of historic funding composition,
weighted short-term wholesale funding, but this
measure does not measure or directly address
funding risk. The weighted short-term wholesale
funding measure is based on a banking
organization’s average use of short-term funding
sources over the prior year but does not reflect a
banking organization’s assets or the banking
organization’s use of longer-term funding sources.
31 Public disclosure requirements are not required
for non-standardized measurements of liquidity risk
required under the Board’s enhanced prudential
standards rule.
32 Certain commenters also expressed concerns
about the descriptions by the BCBS of the Basel
NSFR standard between 2009 and 2014 and the
opportunities to comment on certain elements of
the international standard. Commenters argued that
the agencies should remove elements of the
proposed rule or re-open the comment period
because, in these commenters’ view, the public was
unable to comment on the inclusion of certain
elements in the Basel NSFR standard.
33 See supra note 12.
maturity mismatch more broadly and
over a longer time horizon
s to comment on certain elements of
the international standard. Commenters argued that
the agencies should remove elements of the
proposed rule or re-open the comment period
because, in these commenters’ view, the public was
unable to comment on the inclusion of certain
elements in the Basel NSFR standard.
33 See supra note 12.
maturity mismatch more broadly and
over a longer time horizon.
The final rule is intended to
complement and reinforce other
elements of the agencies’ regulatory
framework that strengthen financial
sector resiliency by addressing risks that
are not directly addressed by the
agencies’ other regulatory measures. For
example, the NSFR rule provides an
important complement to the LCR rule,
which addresses the risk of increased
net cash outflows over a 30-calendar
day period of stress by requiring
banking organizations to hold HQLA
that can be readily converted to cash.
While addressing short-term cash-flow
related risks is a core component of a
banking organization’s liquidity risk
management, a banking organization
could comply with the LCR requirement
and still fund its long-term or illiquid
assets and commitments with short-term
liabilities not sufficiently stable to
preserve these assets over an extended
period.28 The final rule further
complements the LCR rule by mitigating
the risk of a banking organization
concentrating funding just outside the
LCR’s 30-day window
ment, a banking organization
could comply with the LCR requirement
and still fund its long-term or illiquid
assets and commitments with short-term
liabilities not sufficiently stable to
preserve these assets over an extended
period.28 The final rule further
complements the LCR rule by mitigating
the risk of a banking organization
concentrating funding just outside the
LCR’s 30-day window. The final rule
also complements requirements related
to firm-specific measures of funding risk
under the Board’s enhanced prudential
standards rule by providing a
standardized measure of the stability of
a banking organization’s funding profile,
which would promote greater
comparability of funding structures
across banking organizations and
improve transparency and market
discipline through public disclosure
requirements.29 With respect to the
other rules and guidance commenters
cited as sufficiently addressing liquidity
and funding risk, these elements of the
agencies’ regulatory framework do not
directly address balance sheet funding
risks for covered companies on a going-
concern basis. 30
Reliance on less-stable sources of
funding may require a banking
organization to repay or replace its
funding more often and make it more
exposed to sudden funding market
disruptions. Potential loss of funding
can restrict a banking organization’s
ability to support its assets and
commitments over the long term,
generating both safety and soundness
and financial stability risks. The final
rule is designed to mitigate such risks
by directly increasing the funding
resilience of subject banking
organizations. The final rule mitigates
risks to U.S. financial stability by
improving the capacity of banking
organizations to continue to support
their assets and lending activities across
a range of market conditions
oth safety and soundness
and financial stability risks. The final
rule is designed to mitigate such risks
by directly increasing the funding
resilience of subject banking
organizations. The final rule mitigates
risks to U.S. financial stability by
improving the capacity of banking
organizations to continue to support
their assets and lending activities across
a range of market conditions. A covered
company that sufficiently aligns the
stability of its funding sources with its
funding needs based on the liquidity
characteristics of its assets and
commitments is better positioned to
avoid asset fire sales and continue to
function as a financial intermediary in
the event of funding or asset market
disruptions. As a result, a covered
company will be better positioned to
continue to operate and lend, which
promotes more stable and consistent
levels of financial intermediation in the
U.S. economy across economic and
market conditions.
As a standardized metric, the NSFR
also promotes greater comparability
across covered companies and foreign
banks subject to substantially similar
requirements in other jurisdictions and
facilitates supervisory assessments of
vulnerability. Through public disclosure
requirements, the NSFR rule also
promotes greater market discipline
through enhanced transparency.31 In
these ways, a standardized long-term
funding measure, such as the NSFR, is
intended to work in tandem with
internal models-based measures to
provide a more robust and complete
framework to monitor and manage
funding and liquidity risks of covered
companies.
C. The NSFR’s Conceptual Framework,
Design, and Calibration
A number of commenters questioned
the conceptual framework and design of
the proposed rule, as well as its overall
analytical basis and the calibrations of
specific components. In particular,
commenters argued that the agencies
did not provide sufficient justification
or data analysis to support the proposed
calibration of the NSFR rule’s relevant
factors
mework,
Design, and Calibration
A number of commenters questioned
the conceptual framework and design of
the proposed rule, as well as its overall
analytical basis and the calibrations of
specific components. In particular,
commenters argued that the agencies
did not provide sufficient justification
or data analysis to support the proposed
calibration of the NSFR rule’s relevant
factors. Some commenters questioned
whether the calibrations in the proposed
rule reflected a one-year period of stress
or whether the calibration was intended
to reflect different ‘‘business-as-usual’’
conditions.32 A number of commenters
also argued that if the proposed rule was
not calibrated based on the same stress
assumptions as the LCR rule, the
proposed rule should not incorporate
elements and definitions from the LCR
rule. Some commenters also requested
that the agencies reconsider elements of
the proposed rule that they believed to
be more conservative than the LCR rule.
In addition, several commenters argued
that the proposed rule was focused on
commercial banking and was therefore
not sensitive enough to the different
business models of covered companies,
such as custody banks and banking
organizations significantly involved in
capital markets. Another commenter
stated that the NSFR is a static measure
and does not take into account actions
a firm may take in the future to address
funding risk. As addressed in sections
VII.C and VII.D of this Supplementary
Information section, the agencies also
received a number of comments on the
proposed values of ASF factors and RSF
factors where the commenter’s concern
was predicated on the design of the
NSFR. For example, commenters
described the value of certain ASF
factors as conservative based on the
assumption that the values represented
cash-flow amounts and commenters
therefore made direct comparison to
factors used in the LCR rule
received a number of comments on the
proposed values of ASF factors and RSF
factors where the commenter’s concern
was predicated on the design of the
NSFR. For example, commenters
described the value of certain ASF
factors as conservative based on the
assumption that the values represented
cash-flow amounts and commenters
therefore made direct comparison to
factors used in the LCR rule. In light of
these comments, the agencies are
clarifying in this Supplementary
Information section the conceptual basis
for the NSFR design under the final
rule.
1. Use of an Aggregate Balance Sheet
Measure and Weightings
The NSFR’s conceptual design builds
on commonly used assessments of
balance sheet funding.33 The NSFR is a
standardized measure of a banking
organization’s funding relative to its
assets and commitments. Consistent
with the Basel NSFR standard, the final
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34 For example, the final rule takes into account
policy considerations such as externalities
associated with an unstable funding structure that
can affect the safety and soundness of other banking
organizations and U.S. financial stability and an
interest in maintaining financial intermediation of
covered companies across economic and market
conditions.
35 For example, supervisors and industry analysts
compare compositions of assets and liabilities
though the use of a loans-to-deposits ratio or by
defining a measure of ‘‘noncore’’ funding
dependency.
36 As described in section V.E.3 of this
Supplementary Information section, the final rule
applies an adjustment factor to the denominator of
the ratio to reflect the risk profile of a covered
company.
37 See sections VII.C, VII.D and VII.E of this
Supplementary Information section
ies
though the use of a loans-to-deposits ratio or by
defining a measure of ‘‘noncore’’ funding
dependency.
36 As described in section V.E.3 of this
Supplementary Information section, the final rule
applies an adjustment factor to the denominator of
the ratio to reflect the risk profile of a covered
company.
37 See sections VII.C, VII.D and VII.E of this
Supplementary Information section.
rule conceptually draws on supervisory
and industry-developed funding risk
management measures, with
modifications to account for material
funding risks and policy
considerations.34 Supervisors and
industry stakeholders such as credit
rating agencies and equity analysts
routinely assess the funding profiles of
banking organizations through
comparisons of the compositions of the
banking organization’s assets and
liabilities.35 The NSFR’s design as a
ratio of weighted liabilities and
regulatory capital to weighted assets and
commitments is consistent with these
approaches. Using a ratio measure is
appropriate for measuring and
addressing funding risks because it
provides a holistic assessment of a
banking organization’s funding profile
based on the aggregate composition of
the banking organization’s balance sheet
and commitments rather than on
individual assets or liabilities.
The final rule takes into account the
differing risk characteristics of a covered
company’s various assets, liabilities,
and certain off-balance sheet
commitments and applies different
weightings (ASF and RSF factors) to
reflect these risk characteristics. Under
the final rule, ASF and RSF factors are
used to determine the numerator and
denominator of the NSFR and reflect,
respectively, the stability of funding,
and the need for assets and
commitments to be supported by such
funding over a range of market
conditions, each as assessed under the
final rule
ies different
weightings (ASF and RSF factors) to
reflect these risk characteristics. Under
the final rule, ASF and RSF factors are
used to determine the numerator and
denominator of the NSFR and reflect,
respectively, the stability of funding,
and the need for assets and
commitments to be supported by such
funding over a range of market
conditions, each as assessed under the
final rule. As described in sections VII.C
and VII.D of this Supplementary
Information section, the final rule uses
broad categories of liabilities and assets
to assess relative stability and funding
needs, respectively. These weightings
make the NSFR assessment risk
sensitive by differentiating between
types of assets and types of liabilities.
While the NSFR is a simplified and
standardized metric, meeting the NSFR
minimum requirement of 1.0 provides
evidence that a covered company has, in
aggregate, a sufficient amount of stable
liabilities and regulatory capital to
support over a one-year time horizon its
aggregate assets and commitments based
on the liquidity characteristics of such
aggregate assets and commitments.36
Given the size, complexity, scope of
activities, and interconnectedness of
covered companies, a covered company
with an NSFR of less than 1.0 may face
an increased likelihood of liquidity
stress or of having to dispose of illiquid
assets, and may be less well positioned
to maintain its level of financial
intermediation over various market
conditions.
Commenters expressed concerns that
application of RSF factors to specific
assets has the effect of imposing a
requirement on covered companies to
issue additional long-dated liabilities to
fund such assets. The final rule does not
prescribe the method by which a
covered company must meet its
minimum requirement
intain its level of financial
intermediation over various market
conditions.
Commenters expressed concerns that
application of RSF factors to specific
assets has the effect of imposing a
requirement on covered companies to
issue additional long-dated liabilities to
fund such assets. The final rule does not
prescribe the method by which a
covered company must meet its
minimum requirement. Under the final
rule, the NSFR requirement reflects the
aggregate balance sheet of a covered
company, and the final rule does not
apply separate minimum funding
requirements to individual assets, legal
entities, or business lines represented
on the balance sheet. For example, a
covered company that has an NSFR of
1.0 and increases its holding of certain
long-dated assets is not required to issue
additional long-dated liabilities under
the final rule but, rather, has discretion
on how to continue to meet its
minimum requirement, including by
changing its overall asset composition.
2. Use of a Simplified and Standardized
Point-in-Time Metric
Many commenters expressed
concerns or suggestions that related to
the level of granularity in the NSFR’s
conceptual design or that the NSFR was
a point-in-time measure. For example,
commenters suggested the NSFR
include additional RSF and ASF factors
tailored to specific products and
activities.37 Commenters similarly
expressed concerns about the number of
residual maturity categories used in the
NSFR. A number of commenters
criticized the design of the NSFR as a
static metric arguing that the
measurement of the funding risk of a
covered company’s aggregate balance
sheet should consider actions that
banking organizations may undertake in
the future.
In response to these concerns, the
agencies note that a broad comparison
of the stability of a covered company’s
funding relative to the liquidity
characteristics of its assets achieves the
final rule’s funding risk-mitigation
objectives
ment of the funding risk of a
covered company’s aggregate balance
sheet should consider actions that
banking organizations may undertake in
the future.
In response to these concerns, the
agencies note that a broad comparison
of the stability of a covered company’s
funding relative to the liquidity
characteristics of its assets achieves the
final rule’s funding risk-mitigation
objectives. To limit the burden on
covered companies and to maximize the
comparability of the metric between
each covered company and other
international banking organizations, the
NSFR is designed as a simplified metric
that uses a small number of categories
of assets, exposures, liabilities,
counterparty types, and residual
maturity buckets to achieve its
objective. While the balance sheets of
large banking organizations reflect a
complex variety of transactions and
business activities, additional
granularity could be burdensome to
covered companies relative to the goals
of the NSFR requirement. The NSFR
was designed holistically and
introducing additional granularity could
require recalibration of certain other
elements. For example, the
incorporation of additional RSF factors
may require other RSF factors to be
adjusted upward, as they currently
reflect an aggregate view of the level of
stable funding required for the entire set
of assets or off-balance sheet
commitments in a given category.
Additionally, to the extent possible, the
metric utilizes the carrying values of
assets and liabilities on a covered
company’s balance sheet under U.S.
Generally Accepted Accounting
Principles (GAAP) and limits the need
for additional valuations.
In response to comments that the
NSFR is not sensitive to the different
business models of covered companies,
the agencies note that the NSFR is
designed to allow comparison across
covered companies and other
international firms, and to minimize
differences in how liquidity
characteristics of liabilities and assets
are evaluated by covered companies
s the need
for additional valuations.
In response to comments that the
NSFR is not sensitive to the different
business models of covered companies,
the agencies note that the NSFR is
designed to allow comparison across
covered companies and other
international firms, and to minimize
differences in how liquidity
characteristics of liabilities and assets
are evaluated by covered companies. As
a standardized metric, the final rule is
constructed to ensure a sufficient
amount of stable funding across all
covered companies, regardless of their
business models. The NSFR generally
does not differentiate by a banking
organization’s business model, its lines
of business, or the purpose for which
individual assets or liabilities are held
on its balance sheet. For example, the
NSFR treats securities held on a covered
company’s balance sheet based on the
securities’ credit risk and market
characteristics regardless of whether
such securities are held as long-term
investments, as hedging instruments, or
as market making inventory. While the
composition of banking organizations’
balance sheets varies based on business
models and the services provided to
customers, the NSFR is not focused on
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38 As noted above, the point-in-time NSFR
complements forward-looking assessments of risk,
such as a covered company’s internal liquidity
stress testing practices.
39 As described below, calculation date means
any date on which a covered company calculates
its NSFR. See section VI.A.1 of this Supplementary
Information section.
40 See sections VII.C and VII.D of this
Supplementary Information section.
41 The LCR rule compares cash-generating
resources (i.e., the HQLA amount) to cash needs
(total net cash outflows) in a 30-day stress
esting practices.
39 As described below, calculation date means
any date on which a covered company calculates
its NSFR. See section VI.A.1 of this Supplementary
Information section.
40 See sections VII.C and VII.D of this
Supplementary Information section.
41 The LCR rule compares cash-generating
resources (i.e., the HQLA amount) to cash needs
(total net cash outflows) in a 30-day stress. The final
rule compares sources of stable funding (ASF
amount) to the need for stable funding (RSF
amount), each calibrated over a 12-month horizon
and across a range of market conditions.
42 For example, the definitions of ‘‘general
obligation,’’ ‘‘affiliate,’’ and ‘‘company’’ do not
incorporate an assumption of stress.
43 For example, the final rule applies the same
ASF factor to certain forms of funding from a
financial sector entity that mature in six months or
less, regardless of whether such funding is in the
form of a secured funding transaction or unsecured
wholesale funding, whereas the LCR rule generally
treats these categories of funding separately for
purposes of determining applicable outflow
amounts. See 12 CFR 50.32(h) and (j) (OCC); 12 CFR
249.32(h) and (j) (Board); 12 CFR 329.32(h) and (j)
(FDIC).
any particular business model (for
example, commercial banking), as
suggested by commenters.
Like most prudential requirements,
the NSFR is a measure of a covered
company’s condition at a point in time
and by design does not consider the
broad variety of actions that
management may take in the future. As
a general principle, the agencies do not
speculate about future transactions,
contingencies, or potential managerial
remediation steps that the covered
company may take.38
3. Use of a Time Horizon
Certain commenters questioned the
NSFR’s design in respect to its time
horizon
in time
and by design does not consider the
broad variety of actions that
management may take in the future. As
a general principle, the agencies do not
speculate about future transactions,
contingencies, or potential managerial
remediation steps that the covered
company may take.38
3. Use of a Time Horizon
Certain commenters questioned the
NSFR’s design in respect to its time
horizon. While the NSFR measures a
banking organization’s balance sheet
and commitments at a point in time, the
assessment of adequate funding
considers the stability of, and the need
for, funding with reference to a general
one-year time horizon and a range of
market conditions. The measurement
incorporates contractual maturities but
generally does not reflect expectations
about the year following the calculation
date.39 Rather, consistent with the Basel
NSFR standard, the NSFR calibrations
seek to reflect resilient credit
intermediation to the real economy and
general behaviors by banking
organizations and their counterparties.
The use of a time horizon for the
assessment of funding imbalances is
appropriate because the residual
maturities of liabilities and assets of a
covered company at the calculation date
are, among other characteristics,
indicative of the liabilities’ stability and
the assets’ need for funding,
respectively. For example, liabilities
that are due to mature in the short term
will generally provide less stability to a
banking organization’s balance sheet
than longer-term liabilities. Similarly,
certain short-dated assets maturing in
less than one year should require a
smaller portion of funding to be
maintained over a one-year time horizon
because banking organizations may
allow such assets to mature without
replacing them. The choice of a one-year
time horizon is also consistent with
traditional accounting and supervisory
measures of short-term and long-term
financial instruments and exposures.
4
ssets maturing in
less than one year should require a
smaller portion of funding to be
maintained over a one-year time horizon
because banking organizations may
allow such assets to mature without
replacing them. The choice of a one-year
time horizon is also consistent with
traditional accounting and supervisory
measures of short-term and long-term
financial instruments and exposures.
4. Stress Perspectives and Using
Elements From the LCR Rule
A number of commenters requested
clarification on the extent to which the
NSFR calibrations incorporated stress
assumptions. Consistent with the
complementary designs of the Basel
LCR and NSFR standards, the final rule
is designed differently from, and to be
complementary to, the LCR rule. Unlike
the LCR, which compares immediately
available sources of cash to potential
stressed cash outflows over a 30-
calendar day period, the NSFR is not a
cash-flow coverage metric, and ASF and
RSF amounts are not cash-flow
amounts. While ASF factors take into
account the characteristics of liabilities
that influence relative funding stability
across a range of market conditions, the
values of ASF factors do not represent
liability outflow rates. Similarly, while
RSF factors take into account the
liquidity characteristics of assets that
generally influence their need for
funding over a one-year horizon, the
values of RSF factors do not reflect the
monetization value of assets
abilities
that influence relative funding stability
across a range of market conditions, the
values of ASF factors do not represent
liability outflow rates. Similarly, while
RSF factors take into account the
liquidity characteristics of assets that
generally influence their need for
funding over a one-year horizon, the
values of RSF factors do not reflect the
monetization value of assets. In
response to comments that the values of
factors used in the LCR rule imply that
ASF or RSF factors were incorrectly
calibrated, it is important to note that
comparisons of the values of ASF or
RSF factors under the final rule to the
values of outflow and inflow rates used
in the LCR rule are not indicative of the
relative conservatism of the
requirements under both rules.40
Further, the final rule is not designed
to function as a one-year liquidity stress
test, and therefore its ASF and RSF
factors are not assigned based on, or
intended to directly translate to,
assumed cash inflows and outflows over
a one-year period of stress. Rather, the
final rule is intended to serve as a
balance-sheet metric, and ASF and RSF
factors reflect, respectively, the relative
stability of funding and the need for
funding based on the liquidity
characteristics of assets and
commitments, each across a range of
economic and financial conditions.41
Funding and liquidity characteristics of
liabilities and assets under stress
conditions are therefore relevant to, but
not determinative of, ASF and RSF
factors. As a result, ASF and RSF factor
calibrations take into account potential
effects of stress on the stability of
funding and liquidity characteristics of
assets and commitments, but are not
calibrated to require a covered company
to retain a buffer against a stress period
of one year, as discussed in sections
VII.C and VII.D of this Supplementary
Information section
f, ASF and RSF
factors. As a result, ASF and RSF factor
calibrations take into account potential
effects of stress on the stability of
funding and liquidity characteristics of
assets and commitments, but are not
calibrated to require a covered company
to retain a buffer against a stress period
of one year, as discussed in sections
VII.C and VII.D of this Supplementary
Information section.
Although the NSFR generally is not
calibrated to the stress assumptions of
the LCR rule, it nevertheless shares
certain common elements and
definitions with the complementary
LCR where such consistency is helpful.
The alignment of the final rule with the
structure and design of the LCR rule,
where appropriate, aims to improve
efficiency and limit compliance costs to
covered companies by allowing them
more efficiently to implement the two
requirements. In response to
commenters’ concerns that sharing
definitions and elements with the LCR
rule inappropriately incorporates stress
assumptions into the NSFR
requirement, the agencies note that
many shared elements and defined
terms are independent of stress
assumptions.42 Moreover, to the extent
that the final rule incorporates
definitions of the LCR rule, their usage
in the final rule generally reflects
assumptions that are specific to the final
rule.43 Finally, while the final rule is
not calibrated based on a one-year
stress, some considerations of
conservatism are still relevant. For
example, as discussed in section VII.B
of this Supplementary Information
section, the final rule generally applies
the same assumptions for determining
maturity as the LCR rule because
conservative assumptions regarding the
maturity of funding relative to the
duration of asset holdings are
appropriate for assessing the risks
presented by mismatches in balance
sheet funding.
5
vant. For
example, as discussed in section VII.B
of this Supplementary Information
section, the final rule generally applies
the same assumptions for determining
maturity as the LCR rule because
conservative assumptions regarding the
maturity of funding relative to the
duration of asset holdings are
appropriate for assessing the risks
presented by mismatches in balance
sheet funding.
5. Analytical Basis of Factor
Calibrations and Supervisory
Considerations
Several commenters argued that the
agencies did not sufficiently rely on
empirical analysis to inform various
portions of the proposed rule. Other
commenters argued that the agencies
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44 Supervisory experience is informed in part
through confidential data obtained through the FR
2052a report.
45 See sections VII.C and VII.D of this
Supplementary Information section.
46 See section VII of this Supplementary
Information section.
47 Notable divergences in the final rule from the
Basel NSFR standard include the treatment of level
1 liquid asset securities, certain short-term secured
lending transactions backed by level 1 liquid assets,
variation margin in derivatives transactions, and
non-deposit retail funding.
48 See section III.B of this Supplementary
Information section. In the tailoring proposals, the
proposed scope of application for the NSFR was the
same as that proposed for the LCR rule.
49 As noted above, the tailoring proposals would
have removed the Board’s modified LCR and
modified NSFR requirement because the reduced
LCR and reduced NSFR would be better designed
for assessing liquidity and funding risks for banking
organizations in Categories III and IV.
did not sufficiently disclose the
quantitative data and analyses on which
the agencies relied
ed for the LCR rule.
49 As noted above, the tailoring proposals would
have removed the Board’s modified LCR and
modified NSFR requirement because the reduced
LCR and reduced NSFR would be better designed
for assessing liquidity and funding risks for banking
organizations in Categories III and IV.
did not sufficiently disclose the
quantitative data and analyses on which
the agencies relied.
As explained in detail in sections
VII.C and VII.D of this Supplementary
Information section, the liabilities
within an ASF factor category generally
exhibit similar levels of funding
stability and the assets within an RSF
factor category generally exhibit similar
liquidity characteristics. In addition,
there is a sufficient number of ASF
factor and RSF factor categories in the
final rule to differentiate among the
funding risks presented by the assets,
commitments, and liabilities covered by
the NSFR. The ASF and RSF factors as
calibrated for these categories of
liabilities and assets, and as applied
under the Basel NSFR standard to
similar categorizations, are generally
appropriate for U.S. implementation.44
However, as discussed below, the final
rule departs from the Basel NSFR
standard where doing so would support
important domestic policy objectives.
The agencies regularly review their
regulatory framework, including
liquidity requirements, to ensure it is
functioning as intended and will
continue to assess the NSFR’s
calibration under the final rule. A more
specific discussion of the agencies’
analysis is provided in sections VII.C
and VII.D of this Supplementary
Information section, which discuss the
comments received on the calibration of
ASF and RSF factors.
Consistent with the proposed rule and
as noted above, certain ASF and RSF
factor assignments in the final rule take
into account policy considerations
relating to the safety and soundness of
covered companies and U.S
’
analysis is provided in sections VII.C
and VII.D of this Supplementary
Information section, which discuss the
comments received on the calibration of
ASF and RSF factors.
Consistent with the proposed rule and
as noted above, certain ASF and RSF
factor assignments in the final rule take
into account policy considerations
relating to the safety and soundness of
covered companies and U.S. financial
stability.45 For example, the assignment
of a zero percent ASF factor to
wholesale funding from financial sector
entities that matures within six months
generally reflects supervisory concerns
related to the financial stability risks
related to overreliance on this source of
funding by large interconnected banking
organizations. In calibrating the factors,
the agencies also considered behavioral
and operational factors that can affect
funding stability or asset liquidity, such
as reputational incentives that could
cause a covered company to maintain
lending to certain counterparties.46
In response to commenters’ assertion
that the agencies failed to disclose
quantitative data and analyses used to
support the proposed rule, the agencies
note that they disclosed in the proposed
rule material that was available and
reliable. In the instances in which the
agencies cited data in support of the
proposed rule, the agencies identified
that data, acknowledged the
shortcomings of the available data, and
invited input from the public. In
developing the final rule, the agencies
have considered the comments received.
D. Adjusting Calibration for the U.S.
Implementation of the NSFR
As noted above, the final rule is based
on the general framework of the Basel
NSFR standard. Some commenters
argued that the agencies should not
adopt the proposed rule, or should
modify certain elements of the proposed
rule, because the Basel NSFR standard
is an internationally negotiated standard
that was not properly tailored to reflect
U.S. financial, legal, and market
conditions
FR
As noted above, the final rule is based
on the general framework of the Basel
NSFR standard. Some commenters
argued that the agencies should not
adopt the proposed rule, or should
modify certain elements of the proposed
rule, because the Basel NSFR standard
is an internationally negotiated standard
that was not properly tailored to reflect
U.S. financial, legal, and market
conditions. By contrast, a number of
commenters argued that the final rule
should be more consistent with the
Basel NSFR standard, particularly with
respect to elements that would be more
stringent under the proposed rule than
the Basel NSFR standard.
In developing the proposed and final
rules, the agencies considered the Basel
NSFR standard as well as financial,
legal, market, and other considerations
specific to the United States. Basing the
final rule on the general framework of
the Basel NSFR standard helps promote
competitive equity with respect to
covered companies and other large,
internationally active banking
organizations in other jurisdictions,
facilitate regulatory consistency across
jurisdictions, and ensure a minimum
level of resiliency across the global
financial system. Where appropriate, the
final rule differs from the Basel NSFR
standard to reflect specific
characteristics of U.S. markets, practices
of U.S. banking organizations and
domestic policy objectives.47
E. NSFR Scope and Minimum
Requirement Under the Final Rule—Full
and Reduced NSFR
1. Proposed Minimum Requirement and
the Tailoring Final Rule
In the tailoring proposals, the
agencies re-proposed the scope of
application of the NSFR proposed rule
l NSFR
standard to reflect specific
characteristics of U.S. markets, practices
of U.S. banking organizations and
domestic policy objectives.47
E. NSFR Scope and Minimum
Requirement Under the Final Rule—Full
and Reduced NSFR
1. Proposed Minimum Requirement and
the Tailoring Final Rule
In the tailoring proposals, the
agencies re-proposed the scope of
application of the NSFR proposed rule.
The tailoring proposals would have
established four categories of
requirements—Category I, II, III, and
IV—that would have been used to tailor
the application of the NSFR requirement
based on the risk profile of a top-tier
banking organization as measured by
the risk-based indicators.48 Covered
companies subject to Category I and II
requirements would have been subject
to the full requirements of the proposed
rule (full NSFR). Under Category III or
Category IV, however, covered
companies would have been subject to
further tailored NSFR requirements
based on the top-tier banking
organization’s level of weighted short-
term wholesale funding. Specifically, a
covered company that meets the criteria
for Category III with $75 billion or more
in average weighted short-term
wholesale funding would have been
subject to the full NSFR requirement. By
contrast, banking organizations in
Category III with less than $75 billion in
average weighted short-term wholesale
funding, or in Category IV with $50
billion or more in average weighted
short-term wholesale funding, would
have been required to comply with a
reduced NSFR (reduced NSFR)
requirement, calibrated at a level
equivalent to between 85 and 70 percent
of the full NSFR requirement.49 Banking
organizations in Category IV with less
than $50 billion in weighted short-term
wholesale funding would not have been
subject to an NSFR requirement
or more in average weighted
short-term wholesale funding, would
have been required to comply with a
reduced NSFR (reduced NSFR)
requirement, calibrated at a level
equivalent to between 85 and 70 percent
of the full NSFR requirement.49 Banking
organizations in Category IV with less
than $50 billion in weighted short-term
wholesale funding would not have been
subject to an NSFR requirement. In
addition, a depository institution
subsidiary of a covered company
meeting the criteria of Category I, II, or
III would have been required to comply
with the NSFR requirement to which its
parent covered company was subject if
the depository institution subsidiary’s
total consolidated assets were $10
billion or greater. Depository institution
subsidiaries with less than $10 billion
in total consolidated assets, as well as
depository institution subsidiaries of
covered companies meeting the criteria
of Category IV, would not have been
required to comply with an NSFR
requirement.
The tailoring final rule adopted these
categories, with certain changes, for
purposes of the LCR rule and the
agencies’ capital rule. Under the
tailoring final rule, Category I
requirements apply to U.S. global
systemically important banks (GSIBs)
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50 See supra note 19.
51 The tailoring proposals also sought comment
on whether standardized liquidity requirements,
such as the LCR and NSFR, should apply to the U.S.
branches and agencies of a foreign banking
organization to complement the internal liquidity
stress testing standards that currently apply to these
entities. As described in the tailoring final rule, the
Board continues to consider whether to develop
and propose for implementation a standardized
liquidity requirement with respect to the U.S
such as the LCR and NSFR, should apply to the U.S.
branches and agencies of a foreign banking
organization to complement the internal liquidity
stress testing standards that currently apply to these
entities. As described in the tailoring final rule, the
Board continues to consider whether to develop
and propose for implementation a standardized
liquidity requirement with respect to the U.S.
branches and agencies of foreign banking
organizations. See 84 FR at 59257. Any such
requirement would be subject to notice and
comment as part of a separate rulemaking process.
52 The consolidated risks posed by U.S. banking
organizations to the U.S. financial system also
include risks derived from foreign-based branches
and subsidiaries.
53 See supra note 18.
and any of their depository institution
subsidiaries with $10 billion or more in
consolidated assets. Category II
requirements apply to top-tier banking
organizations,50 other than U.S. GSIBs,
with $700 billion or more in
consolidated assets or $75 billion or
more in average cross-jurisdictional
activity, and to their depository
institution subsidiaries with $10 billion
or more in consolidated assets. Category
III requirements apply to top-tier
banking organizations that have $250
billion or more in consolidated assets,
or that have $100 billion or more in
consolidated assets and also have $75
billion or more in (1) average nonbank
assets, (2) average weighted short-term
wholesale funding, or (3) average off-
balance sheet exposure, that are not
subject to Category I or II requirements.
Category III requirements also apply to
depository institution subsidiaries of
these top-tier banking organizations,
each with $10 billion or more in
consolidated assets. Category IV
requirements apply to top-tier
depository institution holding
companies or U.S
hort-term
wholesale funding, or (3) average off-
balance sheet exposure, that are not
subject to Category I or II requirements.
Category III requirements also apply to
depository institution subsidiaries of
these top-tier banking organizations,
each with $10 billion or more in
consolidated assets. Category IV
requirements apply to top-tier
depository institution holding
companies or U.S. intermediate holding
companies that in each case have $100
billion or more in consolidated assets
and $50 billion or more in average
weighted short-term wholesale funding
that are not subject to Category I, II or
III requirements.
Under the tailoring final rule, covered
companies in Category I and II, or in
Category III with $75 billion or more in
average weighted short-term wholesale
funding are subject to the full
requirements of the LCR rule. All other
covered companies in Category III and
covered companies in Category IV with
$50 billion or more in average weighted
short-term wholesale funding are
subject to a reduced LCR requirement
calibrated at 85 percent and 70 percent,
respectively. The calibration approaches
outlined in the tailoring proposals and
tailoring final rule were designed to
better align the regulatory requirements
of banking organizations with their risk
profiles, taking into account their size
and complexity, as well as their
potential impact on systemic risk.
The final rule adopts the risk-based
category approach used in the tailoring
final rule for purposes of applying the
NSFR. The application of the NSFR
requirements to specific entities based
on their tailoring category is discussed
further below.
2. Applicability of the Final Rule to U.S.
Intermediate Holding Companies and
Use of the Risk-Based Indicators
The tailoring proposals would have
applied liquidity requirements to
foreign banking organizations based on
the risk profile of their combined U.S.
operations
application of the NSFR
requirements to specific entities based
on their tailoring category is discussed
further below.
2. Applicability of the Final Rule to U.S.
Intermediate Holding Companies and
Use of the Risk-Based Indicators
The tailoring proposals would have
applied liquidity requirements to
foreign banking organizations based on
the risk profile of their combined U.S.
operations. Specifically, the proposed
NSFR requirements would have applied
to a foreign banking organization based
on the combined risk profile of its U.S.
intermediate holding company and any
U.S. branches or agencies, as measured
by the risk-based indicators.51
Most commenters argued that the
NSFR requirement should apply
directly to a U.S. intermediate holding
company of a foreign banking
organization based on the U.S.
intermediate holding company’s risk
profile. Some commenters further
asserted that no NSFR requirement
should be imposed on U.S. intermediate
holding companies in view of the
application of the NSFR under home
country standards to the top-tier foreign
parent. These commenters argued that
the application of an NSFR requirement
to U.S. intermediate holding companies
is inconsistent with the principles of
national treatment and equality of
competitive opportunity because mid-
tier U.S. bank holding companies of a
similar size and risk profile would not
be subject to an NSFR requirement but
rather would be reflected in the NSFR
applied at the top-tier consolidated U.S.
parent. Other commenters argued that
the liquidity requirements that apply to
foreign banking organizations’ U.S.
operations, such as internal liquidity
stress testing and liquidity risk
management standards, and total loss-
absorbing capacity (TLAC) instruments
issued by U.S. intermediate holding
companies make the application of the
NSFR rule unnecessary for such
companies. In addition, some
commenters argued that U.S
at
the liquidity requirements that apply to
foreign banking organizations’ U.S.
operations, such as internal liquidity
stress testing and liquidity risk
management standards, and total loss-
absorbing capacity (TLAC) instruments
issued by U.S. intermediate holding
companies make the application of the
NSFR rule unnecessary for such
companies. In addition, some
commenters argued that U.S.
intermediate holding companies should
not be subject to the NSFR rule until
after the agencies have conducted an
impact analysis. By contrast, other
commenters supported the proposed
application of an NSFR requirement to
a U.S. intermediate holding company
based on the risk profile of the
combined U.S. operations of the foreign
banking organization.
A U.S. intermediate holding company
poses risks in the United States similar
to domestic banking organizations of a
similar size and risk profile, even if the
parent foreign banking organization is
subject to an NSFR requirement in its
home jurisdiction. The LCR rule, the
Board’s enhanced prudential standards
rule, and the final rule apply to
applicable U.S. banking organizations
on a global consolidated basis and
incorporate certain liquidity risks posed
by mid-tier holding companies and their
subsidiaries.52 For this reason, such
requirements do not apply directly to
mid-tier holding companies on a
standalone basis. Consistent with the
LCR rule and the Board’s enhanced
prudential standards rule, the final rule
applies to a U.S. intermediate holding
company of a foreign banking
organization because of the risks it
presents to the U.S. financial system on
a consolidated basis. However, the final
rule does not apply liquidity or funding
requirements to a subsidiary holding
company of a U.S. intermediate holding
company of a foreign banking
organization
d
prudential standards rule, the final rule
applies to a U.S. intermediate holding
company of a foreign banking
organization because of the risks it
presents to the U.S. financial system on
a consolidated basis. However, the final
rule does not apply liquidity or funding
requirements to a subsidiary holding
company of a U.S. intermediate holding
company of a foreign banking
organization. Further, for the reasons
described in section V.A of this
Supplementary Information section, the
NSFR requirement is a complement to
the LCR rule and other regulatory
requirements for banking organizations
that can present material risks to the
U.S. financial system. In light of these
concerns, the agencies are applying an
NSFR requirement to U.S. intermediate
holding companies.
In addition, consistent with the scope
of application of the LCR rule, the final
rule applies the NSFR requirement to a
U.S. intermediate holding company
based on the risk profile of the U.S.
intermediate holding company, rather
than on the combined U.S. operations of
the foreign banking organization.53
Specifically, the final rule applies a full
NSFR or reduced NSFR requirement to
a U.S. intermediate holding company
under the risk-based categories based on
measures of the U.S. intermediate
holding company’s risk-based
indicators. This approach helps to
enhance the efficiency of NSFR
requirements relative to the proposal,
because stable funding requirements
that apply to a U.S. intermediate
holding company are based on the U.S.
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ding company’s risk-based
indicators. This approach helps to
enhance the efficiency of NSFR
requirements relative to the proposal,
because stable funding requirements
that apply to a U.S. intermediate
holding company are based on the U.S.
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54 Under the final rule, a banking organization
applies the appropriate adjustment factor to its
calculated RSF amount (required stable funding
adjustment percentage), by multiplying its RSF
amount by its required stable funding adjustment
percentage. Banking organizations subject to the full
NSFR requirement apply a 100 percent required
stable funding adjustment percentage. Banking
organizations subject to a reduced NSFR
requirement apply an 85 or 70 percent required
stable funding adjustment percentage.
intermediate holding company’s risk
profile.
3. NSFR Minimum Requirements Under
the Final Rule: Applicability and
Calibration
A number of commenters argued that
the re-proposed scope of applicability of
the NSFR requirement was too stringent.
Some commenters argued that smaller
regional banking organizations should
not be subject to the NSFR rule and that
NSFR requirements for Category IV
banking organizations should be
eliminated. By contrast, other
commenters argued that the tailoring
proposals would tailor NSFR
requirements in a way that would
weaken the safety and soundness of
large banking organizations and increase
risks to U.S. financial stability. Some
commenters argued that full NSFR
requirements should apply to all
covered companies until after the final
rule has been effective for a sufficiently
long period of time for the agencies to
evaluate its efficacy. Other commenters
advocated for further tailoring of the
NSFR requirements
safety and soundness of
large banking organizations and increase
risks to U.S. financial stability. Some
commenters argued that full NSFR
requirements should apply to all
covered companies until after the final
rule has been effective for a sufficiently
long period of time for the agencies to
evaluate its efficacy. Other commenters
advocated for further tailoring of the
NSFR requirements.
For the reasons discussed below, the
final rule generally retains the NSFR
requirements described under the
tailoring proposals. The final rule
adopts a reduced NSFR requirement
calibrated to 85 percent of the full NSFR
requirement for Category III banking
organizations with less than $75 billion
in weighted short-term wholesale
funding, and to 70 percent of the full
NSFR requirement for Category IV
banking organizations with $50 billion
or more in weighted short-term
wholesale funding.54 Consistent with
the tailoring proposals, depository
institution subsidiaries with less than
$10 billion in total consolidated assets
would not be subject to an NSFR
requirement. Moreover, no NSFR
requirement applies at the subsidiary
depository institution-level under
Category IV.
a) NSFR Requirements Under Category
I
Consistent with the scope of
application of the LCR rule, the tailoring
proposals would have applied full
NSFR requirements to covered
companies that meet the criteria for
Category I. The agencies did not receive
comments on the application of the
NSFR requirement under Category I and
are finalizing this aspect as proposed.
b) NSFR Requirements Under Category
II
The tailoring proposals would have
applied the full NSFR requirement to
covered companies that meet the criteria
for Category II. Some commenters
argued that Category II should include
a reduced NSFR requirement to reflect
the lower risk profile of Category II
banking organizations relative to those
in Category I
finalizing this aspect as proposed.
b) NSFR Requirements Under Category
II
The tailoring proposals would have
applied the full NSFR requirement to
covered companies that meet the criteria
for Category II. Some commenters
argued that Category II should include
a reduced NSFR requirement to reflect
the lower risk profile of Category II
banking organizations relative to those
in Category I. Specifically, these
commenters argued certain banking
organizations in Category II present
relatively lower stable funding risks
than Category I banking organizations
due to such banking organizations’
concentration in custody activities and
use of operational deposits.
Similar to U.S. GSIBs and their large
depository institution subsidiaries,
banking organizations that meet the
criteria for Category II provide material
levels of financial intermediation within
the United States or internationally, and
the NSFR helps to ensure that such
banking organizations have appropriate
funding to be in a position to sustain the
necessary intermediation activities over
a range of conditions. Additionally, the
failure or distress of banking
organizations that meet the criteria for
Category II could impose significant
costs on the U.S. financial system and
economy. For example, any very large or
global banking organization, including
one that has a significant custody
business, that is subject to asset fire
sales resulting from funding disruptions
is likely to transmit distress on a
broader scale because of the greater
volume of assets it may sell and the
number of its counterparties across
multiple jurisdictions. Similarly, a
banking organization with significant
international activity is more exposed to
the risk of ring-fencing of funding
resources by one or more jurisdictions.
Ring-fencing may hamper the movement
of funding, regardless of the level of
custody business
er scale because of the greater
volume of assets it may sell and the
number of its counterparties across
multiple jurisdictions. Similarly, a
banking organization with significant
international activity is more exposed to
the risk of ring-fencing of funding
resources by one or more jurisdictions.
Ring-fencing may hamper the movement
of funding, regardless of the level of
custody business. More generally, the
overall size of a banking organization’s
operations, material transactions in
foreign jurisdictions, and the use of
overseas funding sources add
complexity to the management of the
banking organization’s funding profile.
For these reasons, the agencies are
adopting the proposal to apply the full
NSFR requirement to Category II
banking organizations.
c) NSFR Requirements Under Category
III
As described above, the tailoring
proposals would have differentiated
NSFR requirements in Category III based
on whether the level of average
weighted short-term wholesale funding
of a banking organization was at least
$75 billion and sought comment on the
calibration of the reduced NSFR
requirement.
Some commenters argued that
Category III banking organizations with
less than $75 billion in average
weighted short-term wholesale funding
should not be subject to a reduced NSFR
requirement. By contrast, many
commenters expressed support for a
reduced NSFR requirement under
Category III, and generally
recommended that such requirement be
calibrated to 70 percent of the full NSFR
requirement, consistent with the
calibration of the Board’s previously
proposed modified NSFR requirement.
In addition, several of these commenters
argued that the reduced NSFR
requirement should apply only to
holding companies.
To improve the calibration of a
banking organization’s minimum ASF
amount relative to its funding profile
and its potential risk to U.S
percent of the full NSFR
requirement, consistent with the
calibration of the Board’s previously
proposed modified NSFR requirement.
In addition, several of these commenters
argued that the reduced NSFR
requirement should apply only to
holding companies.
To improve the calibration of a
banking organization’s minimum ASF
amount relative to its funding profile
and its potential risk to U.S. financial
stability, the final rule differentiates
between banking organizations based on
their category and their reliance on
short-term wholesale funding. As
discussed in the tailoring final rule,
ongoing reliance on short-term,
wholesale funding can make a banking
organization more vulnerable to safety
and soundness and financial stability
risks. Accordingly, under the final rule,
a banking organization subject to
Category III standards with average
weighted short-term wholesale funding
of $75 billion or more is subject to the
full NSFR requirement.
A banking organization subject to
Category III standards with average
weighted short-term wholesale funding
of less than $75 billion is subject to a
reduced NSFR requirement calibrated at
85 percent of the full NSFR
requirement. An 85 percent calibration
is appropriate for these banking
organizations because they are less
likely to contribute to a systemic event
relative to similarly sized banking
organizations that have a greater
reliance on short-term wholesale
funding and therefore, are more
complex, and whose distress or failure
is more likely to have greater systemic
impact.
As a general matter, the alignment of
the reduced NSFR with the Board’s
initially proposed modified NSFR
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erm wholesale
funding and therefore, are more
complex, and whose distress or failure
is more likely to have greater systemic
impact.
As a general matter, the alignment of
the reduced NSFR with the Board’s
initially proposed modified NSFR
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55 The Board’s initially proposed modified NSFR
applied to depository holding companies with
between $50 billion and less than $250 billion in
total assets whereas the tailoring proposal would
have applied Category III requirements to banking
organizations that either have $250 billion or more
in total assets or have $100 billion or more in total
assets as well as heightened levels of off-balance
sheet exposure, nonbank assets, or weighted short-
term wholesale funding.
56 12 CFR part 50 (OCC); 12 CFR part 249 (Board);
12 CFR part 329 (FDIC).
would not be appropriate because each
of these requirements was designed to
address different risk profiles. The
Board designed the modified NSFR for
smaller U.S. holding companies with
less complex business models and more
limited potential impact on U.S.
financial stability compared to banking
organizations that would be subject to
the reduced NSFR requirement.55
d) NSFR Requirements Under Category
IV
Under the tailoring proposals, a
Category IV banking organization with
average weighted short-term wholesale
funding of $50 billion or more would
have been required to comply with a
reduced NSFR requirement of between
70 and 85 percent. However, the
reduced NSFR requirement under
Category IV would not have applied to
standalone depository institutions or at
the level of a subsidiary depository
institution
proposals, a
Category IV banking organization with
average weighted short-term wholesale
funding of $50 billion or more would
have been required to comply with a
reduced NSFR requirement of between
70 and 85 percent. However, the
reduced NSFR requirement under
Category IV would not have applied to
standalone depository institutions or at
the level of a subsidiary depository
institution.
Some commenters argued that all
banking organizations subject to
Category IV should be subject to an
NSFR requirement and that the
requirement could be further modified
or simplified for these organizations, as
appropriate. In contrast, other
commenters argued for the removal of
any NSFR requirement for all banking
organizations subject to Category IV.
For a banking organization with total
consolidated assets of at least $100
billion and less than $250 billion,
average weighted short-term wholesale
funding of $50 billion or more
demonstrates a material reliance on
short-term, generally uninsured funding
from more sophisticated counterparties,
which can make a banking organization
more vulnerable to large-scale funding
runs, generating both safety and
soundness and financial stability risks.
Accordingly, such a banking
organization is relatively more
vulnerable to the funding stability risks
addressed by the reduced NSFR
requirement relative to similarly sized
banking organizations that rely more
heavily on stable funding such as retail
deposits and have traditional balance
sheet structures. The application of the
NSFR requirement, albeit at a reduced
level, is therefore appropriate for these
banking organizations given their lower
potential impact on systemic risk.
The final rule calibrates the minimum
reduced NSFR requirement under
Category IV at a level equivalent to 70
percent of the minimum level required
under Category I and II
ave traditional balance
sheet structures. The application of the
NSFR requirement, albeit at a reduced
level, is therefore appropriate for these
banking organizations given their lower
potential impact on systemic risk.
The final rule calibrates the minimum
reduced NSFR requirement under
Category IV at a level equivalent to 70
percent of the minimum level required
under Category I and II. The difference
between the 85 percent reduced NSFR
calibration in Category III and the
reduced 70 percent LCR calibration in
Category IV reflects the differences in
risk profiles of banking organizations
subject to each respective requirement.
The 70 percent calibration recognizes
that these banking organizations are less
complex and smaller than other banking
organizations subject to more stringent
requirements under the final rule and
would likely have more modest
systemic impact than larger, more
complex banking organizations if they
experienced funding disruptions.
Banking organizations that are not
subject to Category I, II or III
requirements and that have average
weighted short-term wholesale funding
of less than $50 billion are not subject
to an NSFR requirement under the final
rule. Depository institution subsidiaries
of banking organizations subject to
Category IV requirements are not subject
to an NSFR requirement.
4. Applicability to Depository
Institution Subsidiaries
As described above, the tailoring
proposals would have applied the same
NSFR requirement to top-tier banking
organizations subject to Category I, II, or
III standards and to their subsidiary
depository institutions with $10 billion
or more in total consolidated assets.
Although a number of commenters
generally supported the application of
consistent requirements for U.S
tion Subsidiaries
As described above, the tailoring
proposals would have applied the same
NSFR requirement to top-tier banking
organizations subject to Category I, II, or
III standards and to their subsidiary
depository institutions with $10 billion
or more in total consolidated assets.
Although a number of commenters
generally supported the application of
consistent requirements for U.S.
depository institutions holding
companies and their depository
institution subsidiaries, many
commenters requested that the agencies
eliminate the application of the NSFR
requirement to depository institutions
that are consolidated subsidiaries of
covered companies. These commenters
stated that the NSFR rule should
recognize that the holding company
structure in the United States allows for
banking organizations to manage
liquidity across the broader corporate
group and provides firms with
flexibility regarding where liquidity is
held within the corporate structure.
These commenters also argued that an
NSFR requirement for a consolidated
depository institution is unnecessary in
view of the supervisory monitoring and
prudential limits applicable to the
depository institution’s funding
structure, as well as the source of
strength requirements that obligate the
parent to remediate any funding
deficiencies at a subsidiary depository
institution. Alternatively, these
commenters suggested that the agencies
should rely on their supervisory
authority to ensure stable funding for
depository institutions. The commenters
also requested that, if the agencies apply
the NSFR requirement to depository
institutions, an exemption should apply
to depository institutions that comprise
85 percent or more of the assets of the
consolidated organization. Commenters
supporting such an approach stated that
the costs of separately applying an
NSFR at the subsidiary depository
institution-level would outweigh any
benefits
so requested that, if the agencies apply
the NSFR requirement to depository
institutions, an exemption should apply
to depository institutions that comprise
85 percent or more of the assets of the
consolidated organization. Commenters
supporting such an approach stated that
the costs of separately applying an
NSFR at the subsidiary depository
institution-level would outweigh any
benefits.
The proposed treatment would have
aligned with the agencies’ longstanding
policy of applying similar standards to
holding companies and their depository
institution subsidiaries. Large
depository institution subsidiaries play
a significant role in a banking
organization’s funding structure, and in
the operation of the payments system.
Such entities should have sufficient
amounts of stable funding to meet their
funding needs rather than be overly
reliant on their parents or affiliates. In
addition, these large subsidiaries
generally have access to deposit
insurance coverage and, as a result,
application of standardized funding
requirements would help to reduce the
potential for losses to the FDIC’s deposit
insurance fund. Accordingly, the final
rule maintains the application of an
NSFR requirement to covered
depository institution subsidiaries as
proposed.
VI. Definitions
The proposed rule would have shared
definitions with the LCR rule and would
have been codified in the same part of
the Code of Federal Regulations as the
LCR rule for each of the agencies.56 The
proposed rule also would have revised
certain of the existing definitions under
the LCR rule and adopted new
definitions for purposes of both the LCR
and NSFR rules. The agencies received
a number of comments regarding the
proposed definitions.
One commenter argued that certain of
the LCR rule’s definitions are flawed
and should not be used for purposes of
the NSFR rule because they are the
result of an internationally negotiated
standard that was not properly
calibrated to reflect U.S. market
conditions or U.S
rposes of both the LCR
and NSFR rules. The agencies received
a number of comments regarding the
proposed definitions.
One commenter argued that certain of
the LCR rule’s definitions are flawed
and should not be used for purposes of
the NSFR rule because they are the
result of an internationally negotiated
standard that was not properly
calibrated to reflect U.S. market
conditions or U.S. banking
organizations’ practices. As discussed in
section V.C of this Supplementary
Information section, to the extent that
the final rule incorporates definitions
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[Text truncated at 120,000 characters. The full text is on the page linked above.]

## Nearby sections

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- [FDIC FIL-5-2021 Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering (AML) Considerations](https://www.frixlaw.com/law-library/statutes/FDIC_FIL21005.md)
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---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FDIC_FIL20098. Check the current official text before relying on it. Not legal advice.