European banks nevertheless will need to carefully assess the revised NSFR in order to ensure that it does not overly restrict individual business models and the fundamental maturity transformation role that they perform for society – enabling the efficient allocation of capital resources and supporting the engine for economic growth, citizens’ needs, and prosperity.
Banks typically attract shorter term deposits and use them to fund longer term loans. Managing this maturity mismatch has been the essence of banking for hundreds of years and is an activity that creates value to the real economy. The economic impact of the NSFR will vary depending on the degree of financial intermediation and the role of banks to provide credit to the economy.
The revised NSFR should therefore be placed under careful scrutiny to guarantee its optimal calibration by a comprehensive quantitative impact study which also considers the NSFR’s interplay with other prudential measures, and if necessary be finetuned before it is implemented in 2018.
The EBF supports:
Modifying the NSFR treatment of repos and reverse repos.
A widening of the definition of high quality liquid assets and a lowering of RSF factors for liquid assets to reflect the longer time horizon available to liquidate assets in markets.
An improved treatment of derivatives and its collateral.
Debt repayment based on expected maturity
Netting of other assets and other liabilities (including accruals)
A higher ASF factor and simpler definition for operational deposits
Lower RSF for Trade Finance and Factoring
Mitigating the NSFR disincentives for wholesale secured funding.
EBF Members further seek clarification on the treatment of:
Guaranteed residential mortgages
Expected loan prepayment
SME as retail deposits
Consultative document, January 2014
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