Swiss Federal Council introduces NSFR for banks from July 2021

The Net Stable Funding Ratio (NSFR) is an international standard set by the Basel Committee for Banking Supervision (BCBS) created as part of the Basel III post-crisis reform. It is aimed at enhancing long term resilience of banks.

In line with the European Union (EU) and the Unites States, Switzerland also postponed the implementation of the NSFR after having subjected it to consultation already in 2017. The EU has now implemented the NSFR by amending the Capital Requirements Regulation II (CRR II) with effect from mid-2021. On 11 September 2020, the Swiss Federal Council adopted an amendment to the Liquidity Ordinance (LiqO) to implement this requirement also in Switzerland with effect as from 1 July 2021. The Swiss Financial Market Supervisory Authority FINMA will establish its corresponding practice by means of a circular.

The last revision of the LiqO took place in 2015 with the introduction of the Liquidity Coverage Ratio (LCR). The LCR operates as quantitative minimum requirement for enhancing short term resilience of the banks’ liquidity profile. By implementing the LCR, banks must hold sufficient High Quality Liquid Assets (HQLA) for overcoming a short term liquidity shock of one month.

The NSFR operates as a complement to the LCR by addressing the long term financial stability of banks. Accordingly, bank assets like long-term credits and mortgages shall be financed with stable liabilities, such as client deposits or bonds, with the corresponding long-term maturity. Following the NSFR, the Available Stable Funding (ASF) - being the capital and liabilities that will stay with the bank for more than a year - must be at least equal to the Required Stable Funding (RSF) - being the assets or exposures multiplied by a liquidity factor.

While the BCBS mainly requires implementation by internationally active banks, Switzerland will implement the NSFR for almost all banks following the principle of proportionality, both at the level of the single entity and of the group. Reporting shall be monthly for systemically relevant banks (categories 1 and 2), quarterly for banks of category 3 and half-yearly for banks of categories 4 and 5.