FRM Exam Part II · Monitoring Liquidity

Net Stable Funding Ratio (NSFR): ASF and RSF Explained

Updated 11 October 2026 · Fact-checked

The Net Stable Funding Ratio compares a bank's available stable funding (ASF) with its required stable funding (RSF) over a one-year horizon. NSFR = ASF ÷ RSF, and it must be at least 100%. To solve a question, multiply each liability and capital item by its ASF factor, each asset and off-balance-sheet item by its RSF factor, then divide.

Understand Net Stable Funding Ratio (NSFR)

The Net Stable Funding Ratio (NSFR) is a Basel III structural liquidity standard. It asks one question: over a one-year horizon, does the bank fund its long-term assets with long-term, reliable funding? It limits reliance on short-term wholesale funding that can vanish in a crisis.

The ratio has two sides. Available stable funding (ASF) is the part of capital and liabilities expected to stay in place for at least one year. Required stable funding (RSF) is the amount of stable funding a bank needs, based on the liquidity profile and residual maturity of its assets and off-balance-sheet exposures. The standard is NSFR ≥ 100%.

Each item gets a weight. Funding that is long-term or sticky gets a high ASF factor. Regulatory capital and liabilities with residual maturity of one year or more get 100%. Stable retail and small-business deposits with residual maturity under one year get 95%, and less stable retail and small-business deposits with residual maturity under one year get 90%. Wholesale funding from non-financial corporates with residual maturity under one year gets 50%. Funding from financial institutions with residual maturity of six months to under one year also gets 50%, and so do operational deposits. Funding from financial institutions with residual maturity under six months gets 0%.

Assets work the other way. Assets that are hard to sell or long-dated need more stable funding, so they get a high RSF factor. Cash and central bank reserves get 0%. Unencumbered Level 1 assets (excluding cash and reserves) get 5%. Unencumbered Level 2A assets get 15%. Unencumbered Level 2B assets get 50%.

Loan factors depend on the borrower and the maturity. Performing loans to non-financial corporates and retail customers with residual maturity under one year get 50%. The 85% and 65% factors apply to performing loans to non-financial corporates and retail customers with residual maturity of one year or more. If the risk weight is above 35%, the factor is 85%. If it is 35% or less, such as for qualifying residential mortgages, the factor is 65%. Performing loans to financial institutions with residual maturity under six months get 10% if they are secured by Level 1 assets that the bank can freely rehypothecate, and 15% if they are not. Performing loans to financial institutions with residual maturity of six months to under one year get 50%. Defaulted loans and other assets with maturity of one year or more are mostly 100%.

NSFR vs LCR. The Liquidity Coverage Ratio (LCR) covers a 30-day stress and compares high-quality liquid assets with net cash outflows. The NSFR covers one year and compares funding with the funding needs of the balance sheet. LCR is about surviving a short shock. NSFR is about a sound funding structure. Exam questions often test this distinction.

Key formulas to remember

NSFR: NSFR = Available Stable Funding (ASF) ÷ Required Stable Funding (RSF) ≥ 100%; Horizon is one year. A ratio below 100% means a structural funding shortfall.
ASF: ASF = Σ (carrying value of each capital or liability item × its ASF factor); Capital and liabilities with residual maturity of one year or more: 100%. Stable retail and small-business deposits with residual maturity under one year: 95%. Less stable retail and small-business deposits with residual maturity under one year: 90%. Non-financial corporate funding under one year: 50%. Financial institution funding with residual maturity of six months to under one year: 50%. Operational deposits: 50%. Financial institution funding under six months: 0%.
RSF: RSF = Σ (carrying value of each asset or off-balance-sheet item × its RSF factor); Cash and central bank reserves: 0%. Unencumbered Level 1: 5%. Level 2A: 15%. Level 2B: 50%. Performing loans to financial institutions under six months: 10% if secured by Level 1 assets, otherwise 15%. Performing loans to financial institutions with maturity of six months to under one year: 50%. Performing loans to non-financial corporates and retail customers with maturity under one year: 50%. Performing loans to non-financial corporates and retail customers with risk weight of 35% or less and maturity of one year or more: 65%. Other such performing loans with maturity of one year or more: 85%. Defaulted loans and other long-term assets: mostly 100%.
Funding surplus or shortfall: Surplus = ASF − RSF; A negative value is the stable funding the bank must raise to reach 100%.
LCR (for contrast): LCR = Stock of HQLA ÷ Total net cash outflows over 30 days ≥ 100%; Short-term stress measure. NSFR is the one-year structural measure.

How to solve Net Stable Funding Ratio (NSFR) questions

Use this method for any NSFR calculation or conceptual question.

1Identify the horizon and purpose. NSFR is one year and structural. If the question is about 30 days, it is LCR.
2List every funding item (capital and liabilities) and every asset or off-balance-sheet item given.
3For each funding item, check type (capital, retail stable, retail less stable, corporate, financial) and residual maturity. Assign the ASF factor.
4For each asset, check quality (cash, Level 1, 2A, 2B, loan), residual maturity, risk weight and whether it is encumbered. Assign the RSF factor.
5Multiply each balance by its factor and sum separately to get ASF and RSF.
6Compute NSFR = ASF ÷ RSF and compare with 100%.
7If asked for a gap, compute ASF − RSF. State your interpretation in one line.

Quickest way: Factor-and-sum shortcut

When to use it: Use when the question gives a short list of items with clear categories and four numeric options.

Skip any item with a 0% factor. It adds nothing.
Compute ASF first. Capital and long-term debt at 100% usually dominate.
Compute RSF. Only the main loan and securities lines matter.
Divide and match the nearest option. Check the result is above or below 100% to confirm the direction.

Common mistakes in Net Stable Funding Ratio (NSFR)

Confusing the ASF and RSF direction, giving high-quality liquid assets a high factor.
Students link high factor with good, but RSF measures funding need.
Fix: Remember that liquid assets are easy to sell, so they need little stable funding. Cash is 0% RSF.
Mixing LCR and NSFR horizons.
Both are Basel III liquidity ratios with a 100% minimum.
Fix: LCR is 30 days and HQLA over net outflows. NSFR is one year and ASF over RSF.
Applying a long-term ASF factor to short-term wholesale funding.
Students ignore residual maturity.
Fix: Check residual maturity first. Funding under six months from financial institutions gets 0%.
Treating encumbered assets like unencumbered ones.
Students read only the asset type.
Fix: Encumbered assets need more stable funding the longer they are pledged. Assets encumbered for less than six months are treated as unencumbered. Assets encumbered for six months to under one year get 50% if their unencumbered RSF factor would be 50% or lower, and otherwise keep the higher unencumbered factor. Assets encumbered for one year or more get 100%. Always check encumbrance.
Dividing RSF by ASF.
Rushing under time pressure.
Fix: Funding (ASF) goes on top. A bank that relies heavily on short-term debt should have an NSFR below 100%, so if you get a value above 100% for such a bank, recheck whether you inverted the ratio.
Using the gross loan amount with a single 85% factor for all loans.
Students memorise one loan factor.
Fix: Use 65% for loans to non-financial corporates and retail customers with risk weight of 35% or less, such as qualifying residential mortgages, and 85% for other such performing loans with maturity of one year or more. Performing loans to these borrowers with maturity under one year get 50%. Loans to financial institutions follow different factors.

Worked examples

Example 1

A bank reports: regulatory capital USD 120m; stable retail deposits USD 400m; funding from non-financial corporates with residual maturity under one year USD 200m; funding from financial institutions with residual maturity under six months USD 100m. Assets: cash and central bank reserves USD 80m; unencumbered Level 1 securities USD 100m; performing corporate loans with residual maturity over one year and 100% risk weight USD 500m; other assets with a 100% RSF factor USD 50m. Compute the NSFR.

Show the solution

ASF: capital 120 × 100% = 120.
Stable retail deposits 400 × 95% = 380.
Non-financial corporate funding under one year 200 × 50% = 100.
Financial institution funding under six months 100 × 0% = 0.
Total ASF = 120 + 380 + 100 + 0 = 600.
RSF: cash 80 × 0% = 0; Level 1 100 × 5% = 5; corporate loans 500 × 85% = 425; other assets 50 × 100% = 50.
Total RSF = 0 + 5 + 425 + 50 = 480.
NSFR = 600 ÷ 480 = 1.25 = 125%.

Answer: NSFR = 125%, above the 100% minimum. Surplus stable funding is USD 120m.

Example 2

A bank has ASF of EUR 900m. Its assets are: unencumbered Level 2A securities EUR 200m; qualifying residential mortgages with risk weight of 35% and residual maturity over one year EUR 1,000m; cash EUR 50m. Compute the NSFR and the stable funding shortfall or surplus.

Show the solution

RSF: Level 2A 200 × 15% = 30.
Mortgages 1,000 × 65% = 650.
Cash 50 × 0% = 0.
Total RSF = 30 + 650 + 0 = 680.
NSFR = 900 ÷ 680 = 1.3235, about 132.4%.
Surplus = 900 − 680 = EUR 220m.

Answer: NSFR is about 132.4%, a surplus of EUR 220m of stable funding.

Exam tips

Memorise the factor ladder for both sides: ASF 100, 95, 90, 50, 0 and RSF 0, 5, 15, 50, 65, 85, 100.
Always check residual maturity thresholds: one year and six months drive many factors.
Expect questions that ask which ratio addresses which risk: LCR for short-term resilience, NSFR for structural funding over one year.
In conceptual MCQs, an NSFR below 100% means too much reliance on short-term funding relative to illiquid assets.
Check units and currency before dividing. The ratio itself has no unit.

Practice questions from Monitoring Liquidity

Net Stable Funding Ratio (NSFR): frequently asked questions

What is the difference between LCR and NSFR?

LCR measures whether a bank holds enough high-quality liquid assets to cover net cash outflows over a 30-day stress. NSFR measures whether stable funding over one year covers the funding needs of the assets and exposures. Both have a 100% minimum.

How do you calculate the net stable funding ratio?

Multiply each funding item by its ASF factor and sum to get ASF. Multiply each asset and off-balance-sheet item by its RSF factor and sum to get RSF. Then NSFR = ASF ÷ RSF.

What ASF factor applies to regulatory capital?

Regulatory capital and liabilities with residual maturity of one year or more get a 100% ASF factor. They are regarded as fully stable.

Why do loans get a higher RSF factor than government bonds?

Loans are less liquid and cannot easily be sold in stress, so they need more stable funding. Unencumbered high-quality government bonds can be sold or repoed, so they need little.