Introduction and legal basis

On 4 April and 22 April 2025 the European Central Bank (ECB) received requests from the Council of the European Union and the European Parliament, respectively, for an opinion on a proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions as regards requirements for securities financing transactions under the net stable funding ratio (1) (hereinafter the ‘proposed regulation’).

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union as the proposed regulation is related to (1) the tasks of the European System of Central Banks to define and implement the monetary policy of the Union pursuant to Article 127(2), first indent, of the Treaty, and to contribute to the smooth conduct of policies pursued by the competent authorities relating to the stability of the financial system pursuant to Article 127(5) of the Treaty; and (2) the ECB’s tasks concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty.

In accordance with Article 17.5, first sentence, of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1.   Observations

1.1.

The ECB welcomes the intention to amend Regulation (EU) No 575/2013 of the European Parliament and of the Council (2) (hereinafter the ‘Capital Requirements Regulation’ (CRR)) as regards the prudential treatment of securities financing transactions (SFTs) with a residual maturity of less than six months undertaken with financial customers under the net stable funding ratio (NSFR) in a targeted manner.

1.2.

The NSFR standard agreed by the Basel Committee on Banking Supervision (hereinafter the ‘Basel NSFR standard’) requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities (3). The NSFR is defined as the amount of available stable funding (ASF) relative to the amount of required stable funding (RSF). To calculate the amount of ASF, ASF factors are assigned to a bank’s sources of funding according to their relative stability, for example depending on the residual maturity and the propensity of different types of funding providers to withdraw their funding. Similarly, to calculate the amount of RSF, RSF factors are assigned to assets and off-balance sheet items based on their residual maturity and liquidity characteristics. In the context of secured lending transactions, RSF factors also differ depending on the liquidity characteristics of the collateral underlying those transactions.

1.3.

The ECB understands that the proposed regulation intends to make permanent the current transitory prudential treatment of short-term SFTs and unsecured transactions undertaken with financial customers, which, in the absence of any legislative amendments, would be aligned with the treatment laid down in the Basel NSFR standard once the transitional period ends.

1.4.

With respect to short-term SFTs backed by collateral in the form of level 1 assets, including EU sovereign bonds, the ECB has considered the impact of the proposed regulation’s targeted amendment on SFT market functioning and financial stability (4).

1.5.

On the one hand, the expiry of the transitional arrangement with lower RSF factors being applied to short-term transactions undertaken with financial customers could have adverse effects on the distribution of liquidity and the absorption of government bonds via SFT markets. More specifically, the increase in regulatory costs could lead to a repricing and a reduction in the depth of this SFT market segment. Such frictions might materialise at a time when the announced changes to the Eurosystem’s operational framework for implementing monetary policy envisage an increased reliance on the SFT market for liquidity redistribution (5). Moreover, a possible decrease in SFT market activity could eventually spill over into sovereign bond markets, as the two markets are tightly linked. Against this background, several jurisdictions, such as the United States and the United Kingdom, do not require stable funding for these transactions backed by collateral in the form of level 1 assets in their national implementation of the NSFR (see the table at the end of paragraph 1.8).

1.6.

On the other hand, the prudential and financial stability considerations behind the calibration of the Basel NSFR standard remain valid (6). In fact, the transitional RSF factors may not adequately cover the funding risks from short-term transactions with financial customers. In particular, requiring stable funding for short-term transactions, including SFTs backed by collateral in the form of level 1 assets, undertaken with financial customers, may better account for the potential franchise risk involved, which may incentivise banks to continue rolling-over part of their short-term lending. In addition, a positive RSF factor could reduce the risk of maturity mismatches between lending and funding within the category of short-term SFTs as well as contagion risks between institutions during liquidity shocks.

1.7.

On balance, in view of concerns about market functioning and the associated implications for the implementation of monetary policy, the ECB supports extending the current treatment of short-term SFTs backed by collateral in the form of level 1 assets, 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. The ECB therefore suggests limiting the extension in time, also underlining the Union’s commitment to international standards. The issue could then be reviewed again, taking into account the functioning of SFT markets following the finalisation of the Eurosystem operational framework as well as prudential and financial stability considerations.

1.8.

With respect to short-term SFTs backed by other assets as well as unsecured transactions, such transactions do entail higher funding risks compared to the transactions addressed above that should be properly captured in the NSFR. With respect to SFTs, the characteristics of non-level 1 assets are diverse, and while some are highly liquid, others are not necessarily liquid enough to justify the current 5 % RSF factor. A 5 % RSF factor for SFTs backed by other assets is low compared to other jurisdictions (see the table below, noting that most jurisdictions applying the Basel NSFR standard that are not covered in the table apply the relevant Basel NSFR standard calibration (7)). Similarly, with respect to unsecured transactions, the current 10 % RSF factor is below the 15 % factor used by most key jurisdictions. The potential funding risks and the treatment in other jurisdictions render these envisaged permanent deviations from the Basel NSFR standard unwarranted. Against this background, if the current treatment of those transactions is to be extended, it should also only be temporary. RSF factors in key jurisdictions for short-term transactions with financial counterparties Type of transaction EU CA  (8) CH  (9) JP  (10) UK  (11) US  (12) Basel SFTs backed by level 1 assets 0 % 5 % 10 % 0 % 0 % 0 % 10 % SFTs backed by non-level 1 assets 5 % 10 % 10 % (13) 15 % 5 % 15 % 15 % Unsecured loans 10 % 15 % 15 % (14) 15 % 10 % 15 % 15 % Where the ECB recommends that the proposed regulation is amended, specific drafting proposals are set out in a separate technical working document accompanied by an explanatory text to this effect. The technical working document is available in English on EUR-Lex.

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(1)  COM(2025) 146 final.

(2)  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1, ELI: http://data.europa.eu/eli/reg/2013/575/oj).

(3)  Basel Committee on Banking Supervision, Basel III: the net stable funding ratio, October 2014, available on the website of the Bank for International Settlements at www.bis.org.

(4)  See ECB staff response to the European Commission’s call for evidence on a targeted amendment to the prudential treatment of securities financing transactions under the net stable funding ratio, 7 March 2025, available on the ECB’s website at www.ecb.europa.eu.

(5)  See statement by the Governing Council, ‘Changes to the operational framework for implementing monetary policy’, 13 March 2024, and the ECB blog article ‘Repo markets: Understanding the effects of a declining Eurosystem market footprint’, 23 July 2024, both available on the ECB’s website at www.ecb.europa.eu.

(6)  See European Banking Authority (EBA), Report on specific aspects of the NSFR framework under Article 510(4), (6) and (9) of Regulation (EU) No 575/2013, January 2024, available on the EBA’s website at www.eba.europa.eu. The report was published within the mandate granted to the EBA by Article 510(6) of the CRR.

(7)  For detailed jurisdictional assessments of the implementation of the NSFR, see Basel Committee on Banking Supervision, RCAP Jurisdictional assessments: regulatory implementation consistency, last update 2 April 2025, available on the website of the Bank for International Settlements at www.bis.org.

(8)   Canada: see Office of the Superintendent of Financial Institutions, ‘Liquidity Adequacy Requirements (LAR) (2025) Chapter 3 – Net Stable Funding Ratio’, available on the website of the Government of Canada’s Office of the Superintendent of Financial Institutions at www.osfi-bsif.gc.ca.

(9)   Switzerland: see the Swiss Federal Council, Ordinance on the Liquidity of Banks and Securities Firms of 30 November 2012 (Liquidity Ordinance, LiqO; RS 952.06), available on the Swiss Federal Council’s website at www.fedlex.admin.ch.

(10)   Japan: see Bank for International Settlements, Regulatory Consistency Assessment Programme (RCAP): Assessment of Basel Committee's Net Stable Funding Ratio standard – Japan, available on BIS’s website at www.bis.org.

(11)   United Kingdom: see Bank of England Prudential Regulation Authority Rulebook – Liquidity (CRR), available at www.prarulebook.co.uk.

(12)   United States: see Comptroller of the Currency, Federal Reserve System and Federal Deposit Insurance Corporation, Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements, 86 Fed. Reg. 9120 (Feb. 11, 2021), available on the website of the Federal Register at www.federalregister.gov.

(13)  A 10 % RSF factor applies to SFTs backed by Level 2a assets.

(14)  A 15 % RSF factor applies to SFTs backed by collateral other than in the form of level 1 and level 2a assets, as well as unsecured transactions.