Economics • Banking & FinanceHard
What is the primary purpose of the 'Net Stable Funding Ratio (NSFR)' introduced under Basel III norms?
A. To require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities over a one-year horizon.✓ Correct Answer
B. To ensure that commercial banks hold sufficient high-quality liquid assets to survive a severe 30-day stress scenario.
C. To limit the total leverage exposure of financial institutions relative to their Tier 1 capital base.
D. To prevent systemic contagion by restricting interbank lending exceeding 10 percent of capital.
💡 Solution & Explanation
The Net Stable Funding Ratio is a core Basel III metric requiring banks to maintain stable funding sources relative to the liquidity profiles of their assets and off-balance-sheet activities over a one-year time horizon. It minimizes structural maturity mismatches in banking operations.
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