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Financial Trade Associations Ask Bank Regulators to Reconsider NSFR


Sean Oblack

Washington, DC  ̶  August, 8, 2016  ̶  The Clearing House, along with the Securities Industry and Financial Markets, Financial Services Roundtable, American Bankers Association, Institute of International Bankers and  CRE Finance Council submitted a comment letter to bank regulators Friday on the proposed Net Stable Funding Ratio (“NSFR”) rule.  In the letter, the Associations express continued support for the maintenance of stable funding and liquidity profiles by banks, but urge that the NSFR not be implemented in the United States without an analytically sound rationale that considers its marginal benefits and economic costs.  

“Commercial banks have made great strides in improving their liquidity and the duration and stability of their overall funding profiles since the financial crisis, and key reforms already enacted, including the Liquidity Coverage Ratio, will ensure these profiles remain stable over time,” said Brett Waxman, managing director at The Clearing House.  “Since these reforms and the NSFR focus on similar risks, we believe that a detailed study of the interplay of existing liquidity rules and clear identification of any remaining funding or liquidity-related risks to be mitigated is warranted, to ensure that the NSFR’s purported benefits outweigh the substantial costs that would be imposed on U.S. economic and job growth.” 

In the event the regulators ultimately adopt a final NSFR rule, the letter also offers specific recommendations that would better align the NSFR with the underlying economic substance of various assets, liabilities and related transactions, better reflect the reality of market dynamics in the United States and help mitigate unnecessary harm to the U.S. banking sector and the broader economy. 

In July, The Clearing House published a research note, The Net Stable Funding Ratio: Neither Necessary nor Harmless, that explains that the Basel Committee dropped the concept of a long-term stress metric for the NSFR (which is also absent in the U.S. proposal) and therefore the NSFR is an unreliable guide for a bank’s liquidity position.  It also finds that, although U.S. banks are likely to be able to comply with the NSFR in today’s economic environment without major adjustments, as the Federal Reserve’s balance sheet and interest rates normalize over time, compliance is likely to restrict credit.

About The Clearing House.  The Clearing House is a banking association and payments company that is owned by the largest commercial banks and dates back to 1853.  The Clearing House Payments Company L.L.C. owns and operates core payments system infrastructure in the United States and is currently working to modernize that infrastructure by building a new, ubiquitous, real-time payment system.  The Payments Company is the only private-sector ACH and wire operator in the United States, clearing and settling nearly $2 trillion in U.S. dollar payments each day, representing half of all commercial ACH and wire volume.  Its affiliate, The Clearing House Association L.L.C., is a nonpartisan organization that engages in research, analysis, advocacy and litigation focused on financial regulation that supports a safe, sound and competitive banking system. 

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