The European Banking Authority (EBA) has published a report analysing the core funding ratio across the EU. The report is in response to a request from the European Commission to explore the possibilities of the core stable funding ratio (CFR) as a potential alternative metric for the assessment of EU banks’ funding risk, taking in account proportionality. The report shows a lack of correlation in terms of outcome and conclusions between the net stable funding ratio (NSFR) and the CFR for the whole sample of EU banks and particularly for the smaller ones. This is mainly due to the fact that CFR assesses the funding risk considering only the liabilities side of banks irrespective of the stable funding needed by the various types of assets they may have. The NSFR, on the contrary, provides a full funding risk assessment considering both sides of the balance sheet. The EBA concludes that, overall, it would be misleading to rely only on the CFR to assess banks’ funding needs because, unlike the NSFR, the CFR does not look at the whole balance sheet of a bank and, therefore, cannot fully assess a potential funding gap.
View EBA report on core funding ratio, 8 September 2016