What does the Net Stable Funding Ratio (NSFR) measure?

The Net Stable Funding Ratio (NSFR) is designed to assess a bank's stability and resilience by measuring its available stable funding against its required stable funding over a one-year horizon. This ratio captures the long-term liquidity profile of a bank, ensuring that it maintains a stable funding structure to support its activities over an extended period.

Essentially, it evaluates whether the sources of funding that a bank has are sufficient to cover the risk of its assets and the requirements related to liquidity over a year, rather than just focusing on short-term activities. By comparing the available stable funding—which includes equity and long-term debt—to the required stable funding—which is determined by the liquidity characteristics of the bank's assets—the NSFR provides insights into the bank's ability to deal with potential disruptions in funding.

This metric is crucial for regulators and stakeholders, as it underscores the importance of maintaining a stable funding profile to promote the stability of the financial system as a whole.