The European Central Bank (ECB) responded to the European Commission’s call for evidence on a targeted amendment to the prudential treatment of securities financing transactions (SFTs) under the net stable funding ratio (NSFR).
For banks providing funding, short-term SFTs undertaken with financial customers and backed by collateral in the form of Level 1 assets, including EU sovereign bonds, do not currently require any stable funding.
All other short-term transactions undertaken with financial customers are subject to required stable funding (RSF) factors of 5% or 10%. This transitional arrangement was initially set to expire on 28 June 2025. In the absence of a legislative amendment, the treatment of such transactions for the purposes of the NSFR would automatically be aligned with the Basel NSFR standard once the transitional period ends.
“On balance, in view of concerns about market functioning and the associated implications for the implementation of monetary policy, ECB staff support extending the current treatment of short-term SFTs backed by Level 1 collateral, for example by five years, as a temporary measure, which should be subject to a review clause.”
“It is too early to conclude that concerns about market functioning permanently outweigh financial stability and supervisory benefits. ECB staff suggest extending the temporary exemption, for example by five years, also underlining the EU’s commitment to international standards. The issue could then be reviewed again, taking into account the functioning of SFT markets following the finalization of the Eurosystem operational framework as well as prudential and financial stability considerations.”