Is the Net Stable Funding Ratio on the way out?

A great article in the FT Tuesday noted that the Net Stable Funding Ratio may be a possible casualty of the Basel Committee’s decision to delay the full launch of the Liquidity Coverage Ratio. Kudos to Henry Teitelbaum of the FT for coverage of this issue.

For our purposes, the highlights of the article are:

– There is a correlation between the LCR and the NSFR. The more that one gets watered down, the more likelihood that the other will suffer as well.

– The NSFR is (still) criticized for its one-size fits all approach. This increases the chances that emerging markets and others will lobby to ditch it altogether.

– The Basel Committee still stands behind the NSFR. For now.

The full FT article is here. (Note the new competition with the WSJ and the New York Times’s DealBook.)

We compare this article to Andrew Haldane of the Bank of England’s recent comments to British Parliamentarians. According to Reuters, Mr. Haldane said:

“Regulators cannot really police this complex beast. There are moves afoot with the Basel Committee to seek ways to simplify and streamline the move to a proper regulatory rather than self-regulatory edifice. That may take some time.”

Reuters added:

“The UK authorities are thrashing out a ‘prudent valuation framework’ to put a price tag on illiquid or toxic assets, and force banks to make deductions from their capital buffers.”

“We might in time be able to inject a notion of prudent valuation into accounting,” Haldane said.

Here is the Reuters article.

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