FRM Part I · FRM Exam Part I · Banks
Under Basel III, the Net Stable Funding Ratio (NSFR) is designed primarily to address which of the following?
The NSFR addresses structural funding mismatch: it requires available stable funding to cover the stable funding needed by long-term, illiquid assets over a one-year horizon. This limits dependence on unstable short-term wholesale funding, unlike the LCR, which covers a 30-day stress.
- AMismatch between long-term assets and unstable short-term funding over a one-year horizonCorrect
- BAbility to meet net cash outflows over a 30-day stress period using liquid assets
- CCapital adequacy against unexpected credit losses at a 99.9% confidence level
- DExcessive leverage measured without risk weighting of assets
Explanation
NSFR compares available stable funding with required stable funding over a one-year horizon, limiting reliance on short-term wholesale funding for illiquid assets. The 30-day measure describes the LCR. The leverage ratio is the non-risk-weighted measure.
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