European Banking Authority Reports on Core Funding Ratio

The European Banking Authority published a report analyzing the core funding ratio across the EU. The report comes in response to a call for advice from the European Commission to explore the possibilities of the core funding ratio as a potential alternative metric for the assessment of EU banks’ funding risk, taking into account proportionality. 

The EBA reports that overall there appears to be a lack of correlation in terms of outcomes and conclusions between the core funding ratio and the net stable funding ratio for the whole sample, in particular for smaller banks. The EBA comments that this is mainly because CFR assessment of funding risk only considers the liabilities side of banks irrespective of the stable funding needed. Conversely, the EBA noted that the NSFR considers both sides of the balance sheet and therefore provides a full funding risk assessment. The EBA's opinion is that the NSFR is the most accurate measurement for assessing banks’ funding risk and that the CFR is not a suitable replacement. 

View the report.