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FRM Part II · FRM Exam Part II · Monitoring Liquidity

A bank's risk committee reviews its Net Stable Funding Ratio (NSFR) under Basel III. Which statement correctly describes the ratio and its minimum requirement?

The NSFR equals available stable funding divided by required stable funding and must be at least 100%. It looks at a one-year horizon to ensure long-term assets are supported by stable funding. The 30-day HQLA ratio is the LCR, not the NSFR.

  1. AAvailable stable funding divided by required stable funding, which must be at least 100%Correct
  2. BHigh-quality liquid assets divided by total net cash outflows over 30 days, which must be at least 100%
  3. CRequired stable funding divided by available stable funding, which must be at least 100%
  4. DTier 1 capital divided by total leverage exposure, which must be at least 3%

Explanation

The NSFR compares available stable funding (ASF) with required stable funding (RSF) over a one-year horizon, and the ratio must be at least 100%. Option 2 describes the LCR, which has a 30-day horizon. Option 3 inverts the ratio. Option 4 is the leverage ratio.

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