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FRM Part II · FRM Exam Part II · Monitoring Liquidity

A bank's treasury team is explaining the purpose of the Net Stable Funding Ratio (NSFR) to its board. Which statement best describes the NSFR?

The NSFR divides available stable funding by required stable funding over a one-year horizon and must be at least 100%. It promotes structural funding resilience. The 30-day HQLA coverage test is the LCR, a different short-term measure.

  1. AIt compares available stable funding with required stable funding over a one-year horizon, with a minimum of 100%Correct
  2. BIt compares high-quality liquid assets with net cash outflows over a 30-day stress period, with a minimum of 100%
  3. CIt compares Tier 1 capital with total exposure, with a minimum of 3%
  4. DIt compares total deposits with total loans, with a minimum of 80%

Explanation

The NSFR is a structural, longer-term measure: available stable funding (ASF) divided by required stable funding (RSF) must be at least 100% over a one-year horizon. The 30-day HQLA-to-outflows comparison describes the LCR, not the NSFR. The other options describe the leverage ratio and a loan-to-deposit ratio.

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