Prudential Regulation Authority Rulebook

1.

Unless otherwise specified in this Chapter 7 of Title IV (The Net Stable Funding Ratio), for small and non-complex institutions the amount of required stable funding shall be calculated by multiplying the accounting value of various categories or types of assets and off-balance sheet items by the required stable funding factors to be applied in accordance with Section 2 of this Chapter. The total amount of required stable funding shall be the sum of the weighted amounts of assets and off-balance sheet items.

2.

Assets that institutions have borrowed or otherwise acquired in securities financing transactions shall be subject to the required stable funding factors to be applied under Section 2 of this Chapter where those assets are accounted for on the balance sheet of the institution or where the institution is exposed to all or substantially all of the economic risk and reward in respect of those assets. Otherwise, such assets shall be excluded from the calculation of the amount of required stable funding.

3.

Assets that institutions have lent or otherwise disposed of in securities financing transactions which the institution keeps on balance sheet or in respect of which the institution retains exposure to all or substantially all of the economic risk and reward, shall be considered as encumbered assets for the purposes of this Chapter 7 of Title IV (The Net Stable Funding Ratio) and shall be subject to required stable funding factors to be applied under Section 2. Otherwise, such assets shall be excluded from the calculation of the amount of required stable funding.

4.

Assets that are encumbered for a residual maturity of six months or longer shall be assigned either the required stable funding factor that would be applied under Section 2 to those assets if they were held unencumbered or the required stable funding factor that is otherwise applicable to those encumbered assets, whichever factor is higher. The same shall apply where the residual maturity of the encumbered assets is shorter than the residual maturity of the transaction that is the source of encumbrance.

Assets that have less than six months remaining in the encumbrance period shall be subject to the required stable funding factors to be applied under Section 2 to the same assets if they were held unencumbered.

5.

Where an institution reuses or repledges an asset that was borrowed, including in securities financing transactions, and that is accounted for off-balance sheet, the transaction through which that asset has been borrowed shall be treated as encumbered to the extent that the transaction cannot mature without the institution returning the asset borrowed.

6.

The following assets shall be considered to be unencumbered:

1. (a) assets included in a pool which are available for immediate use as collateral to obtain additional funding under committed or, where the pool is operated by a central bank, uncommitted but not yet funded credit lines available to the institution;
2. (b) assets that the institution has received as collateral for credit risk mitigation purposes in secured lending, secured funding or collateral exchange transactions and that the institution may dispose of;
3. (c) assets attached as non-mandatory over-collateralisation to a covered bond issuance.

For the purposes of point (a) of the first subparagraph of this paragraph, institutions shall assume that assets in the pool are encumbered in order of increasing liquidity on the basis of the liquidity classification set out in Chapter 2 of the Liquidity Coverage Ratio (CRR) Part of the PRA Rulebook, starting with assets ineligible for the liquidity buffer.

8.

Institutions shall exclude assets associated with collateral recognised as variation margin posted in accordance with point (b) of Article 428al(4) and Article 428az(2) or as initial margin posted or as contribution to the default fund of a CCP in accordance with points (a) and (b) of Article 428ay from other parts of calculation of the amount of required stable funding in accordance with this Chapter 7 of Title IV (The Net Stable Funding Ratio) in order to avoid any double counting. This paragraph 8 does not apply to collateral assets associated with excess variation margin posted and not already recognised in point (b) of Article 428al(4) or Article 428az(2), which institutions shall take into account in other parts of the calculation of the amount of required stable funding in accordance with this Chapter 7 of Title IV (The Net Stable Funding Ratio).

9.

Institutions shall include in the calculation of the amount of required stable funding financial instruments, foreign currencies and commodities for which a purchase order has been executed. They shall exclude from the calculation of the amount of required stable funding financial instruments, foreign currencies and commodities for which a sale order has been executed, provided that those transactions are not reflected as derivatives or secured funding transactions on the institutions' balance sheet and that those transactions are to be reflected on the institutions' balance sheet when settled.

10.

Institutions shall apply appropriate stable funding factors to off-balance sheet exposures that are not referred to in this Chapter 7 of Title IV (The Net Stable Funding Ratio) to ensure that they hold an appropriate amount of available stable funding for the portion of those exposures that are expected to require funding over the one-year horizon of the net stable funding ratio. When considering those factors, institutions shall, in particular, take into account the material reputational damage to the institution that could result from not providing that funding.