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How the Net Stable Funding Ratio Impacts Corporate Treasury

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$30 | $80
Not Applicable
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The net stable funding ratio (“NSFR”) is one of the remaining Basel III reforms.  In short, the NSFR requires banks to maintain a stable funding profile in relation to their assets and off-balance sheet activities. 

The immediate impact will be two-fold: (1) the long-term funding costs required under the NSFR limit will discourage dealer involvement in derivatives and derivatives-related transactions, effectively reducing liquidity in the market that end-users rely on to hedge risk; and (2) costs associated with capital-raising in a less liquid market would inevitably be borne by derivatives end-users and consumers. In fact, there are specific “add-on” charges for corporate end-users, especially with respect to derivatives.  For example, dealer counterparties are required provide required stable funding for 20% of the negative replacement cost of derivative liabilities (before deducting variation margin posted).  This is essentially a 20% “tax” on a derivatives trade, even if a bank has a stable funding profile before the 20% add-on. This webinar focuses on these issues and suggest ways that they could be changed. 

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