EBA says that core funding ratio cannot replace NSFR when assessing funding risk

The European Banking Authority (EBA) published today a Report analysing the core funding ratio across the EU. The Report is in response to a request from the European Commission to explore the possibilities of the core stable funding ratio (CFR) as a potential alternative metrics for the assessment of EU banks' funding risk, taking into account proportionality. The Report concludes that, overall, it would be misleading to rely only on the CFR to assess banks' funding needs because, unlike the Net Stable Funding Ratio (NSFR), the CFR does not look at the whole balance sheet of a bank and, therefore, cannot fully assess a potential funding gap. This Report is based on the same QIS data used for the NSFR Report published in December 2015.

 

The report shows a lack of correlation in terms of outcome and conclusions between the NSFR and the CFR for the whole sample of EU banks and particularly for the smaller ones. This is mainly due to the fact that CFR assesses the funding risk only considering the liabilities side of banks irrespective of the stable funding needed by the various types of assets they may have. The NSFR, on the contrary, provides a full funding risk assessment considering both sides of the balance sheet.

 

For this reason, the EBA believes that the CFR cannot replace the NSFR, which appears to be the most accurate metrics for assessing banks' funding risk.

This Report is based on the same QIS data used for NSFR Report published in December 2015, comprising 279 banks. The reference date of the analysis is December 2014.

 

Following the publication of the NSFR Report in December 2015, on 12 April 2016, the European Commission sent a call for advice to the EBA requesting an assessment of the CFR as a potential alternative metrics to the NSFR for the analysis of funding risk. The EBA responded to the Commission on 11 May 2016 informing that some quantitative information would be provided on the basis of the data available at the moment. This report, published today, has been submitted to the Commission.