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Financial Trade Associations Ask Bank Regulators to Reconsider NSFR

The Clearing House (TCH), along with SIFMA, the FSR, CRE Finance Council, the IIB, and the ABA (Associations), submitted a comment letter to bank regulators on the proposed Net Stable Funding Ratio (“NSFR”) rule. In the letter, the Associations urge that the NSFR not be implemented in the U.S. without an analytically sound rationale that takes into account the unique aspects of the U.S. financial system. The letter acknowledges that 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 points out that a number of key reforms already enacted, including the Liquidity Coverage Ratio, will ensure these profiles remain stable over time. Since these reforms and the NSFR focus on many similar risks as the NSFR is meant to reduce, the letter requests a detailed study be done of the cumulative impact of existing liquidity rules and clear identification of any remaining funding or liquidity-related risks to be mitigated, to ensure that the NSFR’s purported benefits outweigh the substantial costs.

The letter also offers specific recommendations in the event the Agencies ultimately adopt an NSFR regime, 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 U.S. and help mitigate unnecessary harm to the U.S. banking sector and the broader economy.