COMMISSION STAFF WORKING DOCUMENT Accompanying the document 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
Date: 2025-03-31
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU banking union, banking policy, banking supervision, credit institution, financial legislation, financial risk, financial supervision, financial transaction, investment company, private-sector liquidity

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 31.3.2025  SWD(2025) 77 final  COMMISSION STAFF WORKING DOCUMENT Accompanying the document 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 {COM(2025) 146 final}  
 
 
Contents 

1. 
2. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ................................................. 2 
PROBLEM DEFINITION ...................................................................................................... 3 

2.1. What is the problem and what are the problem drivers? .......................... 3 
2.1.1. Characteristics of the market and implications for EU competitiveness3 
2.1.2. Implications for financial stability and impacts on monetary policy .... 6 
2.1.3. Transitional prudential treatment under the CRR ................................. 7 
2.1.4.  The  European  Banking  Authority  (EBA)  report  on  the  end  of  the 
transitional treatment ............................................................................. 9 
2.1.5. The NSFR requirement in third countries ........................................... 10 
2.1.6. Implications for banks active in the EU capital markets ..................... 11 
2.1.7. Intermediation in the EU government debt market ............................. 12 
2.1.8. Supporting diversification in the liquidity buffer of banks ................. 12 
2.1.9. Concerns raised by other stakeholders ................................................ 13 
2.2. How will the problems evolve? .............................................................. 14 
3. OBJECTIVES: WHAT IS TO BE ACHIEVED? ....................................................................... 14 

3.1. General objectives .................................................................................. 14 
3.2. Specific objectives .................................................................................. 15 
4. WHAT ARE THE AVAILABLE POLICY OPTIONS? ............................................................ 16 

4.1.  What is the baseline on which options are assessed? .......................... 16 
4.1.1. Volume impacted ................................................................................ 17 
4.1.2. Additional cost .................................................................................... 18 
4.2.  Description and assessment of policy options ..................................... 19 
5. HOW DO THE DIFFERENT POLICY OPTIONS COMPARE? .............................................. 21 
6. PREFERRED POLICY OPTION ............................................................................................... 23 
7. HOW WILL THE IMPACT BE MONITORED AND EVALUATED? .................................... 24 

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1.  INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

In  response  to  the  2008  Global  Financial  Crisis  (GFC),  the  European  Union  (EU) 
substantially reformed the prudential framework applicable to banks in order to strengthen 
their resilience and help prevent a similar crisis from happening again. Those reforms were 
largely based on international standards that have been adopted since 2010 by the Basel 
Committee on Banking Supervision (BCBS) 1. The standards are collectively known as the 
Basel III standards or the Basel III framework 2. Basel III standards aim to ensure domestic 
and global financial stability, the level playing field for large internationally active banks, 
the proper functioning of international financial markets, and to support competitiveness 
and hence economic growth.  
The EU prudential  framework for banks,  consisting  of Regulation  (EU)  No 575/2013  3 
(‘Capital  Requirements  Regulation’  or  ‘CRR’)  and  Directive  2013/36/EU  4  (‘Capital 
Requirements Directive’ or ‘CRD IV’), among others implemented Basel III standards to 
all  banks  in  the  EU.  Thanks  to  these  reforms,  the  EU  banking  sector  has  become 
significantly more resilient to economic shocks. The EU banking sector has been able to 
withstand the shocks of the COVID-19 crisis, the September 2022 UK Gilt market crisis, 
and the March 2023 banking crisis. 

The CRR lays down liquidity and funding requirements in EU legislation, as set out by the 
BCBS under the Basel III framework. The Net Stable Funding Ratio (NSFR) requirement 
aims to ensure that banks have sufficient stable funding sources to support their activities 
over  a  one-year  horizon,  avoiding  excessive  maturity  mismatches  between  assets  and 
liabilities and a too high reliance on short-term wholesale funding. As a complementary 
prudential metric to the NSFR, the Liquidity Coverage Ratio (LCR) promotes the short-
term resilience of banks by ensuring they have an adequate stock of high-quality liquid 
assets  that  can  be  easily  converted  into  cash  to  cover  potential  outflows  under  stress 
conditions. 
In more detail, the CRR, as amended by Regulation (EU) 2019/876 (‘CRR2’) 5, specifies 
the NSFR as the ratio of an institution's amount of available stable funding (ASF) to its 
amount  of  required  stable  funding  (RSF).  The  amount  of  ASF  should  be  calculated  by 
multiplying  the  institution's  various  liabilities  by  appropriate  factors  that  reflect  their 

1  Members  of  the  BCBS  comprise  central  banks  and  bank  supervisors  from  29  jurisdictions  worldwide. 
Among the EU Member States, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and 
Sweden, as well as the European Central Bank are members of the BCBS. The European Commission and 
the European Banking Authority participate in BCBS meetings as observers. 
2 The consolidated Basel III framework is available at https:w.bis.org/bcbs/publ/d462.htm.  
3 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012 
(https://eur-lex.europa.eu/eli/reg/2013/575/oj/eng) 
4 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 
activity  of  credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms, 
amending  Directive  2002/87/EC  and  repealing  Directives  2006/48/EC  and  2006/49/EC  (https://eur-
lex.europa.eu/eli/dir/2013/36/oj/eng) 
5  Regulation  (EU)  2019/876  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for 
own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, 
exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and 
Regulation (EU) No 648/201 (https://eur-lex.europa.eu/eli/reg/2019/876/oj/eng) 

2 

 
 
 
degree of funding liquidity and thus availability for funding asset exposures. The amount 
of RSF should be calculated by multiplying the institution's assets and off-balance-sheet 
commitments by appropriate factors that reflect their liquidity characteristics and residual 
maturities. The NSFR requirement has been binding on EU banks since 28 June 2021. 

The Commission’s monitoring of NSFR implementation across jurisdictions shows that 
other  major  jurisdictions,  notably  the  United  States,  the  United  Kingdom,  Switzerland, 
Canada and Japan, are permanently deviating from the Basel NSFR standard as regards 
the  prudential  treatment  that  applies  to  securities  financing  transactions  (SFTs)  with  a 
residual maturity of less than six months and collateralised by high quality assets. A level 
playing field is a core feature of the single market, not only in the way it governs economic 
interactions between Member States, but also for how the EU interacts with third countries. 
Given  that  the  current  treatment  does  not  raise  financial  stability  concerns  and  in  the 
interest  of  ensuring  an international level  playing field,  the Commission  must act. This 
document provides a comprehensive overview of the problem, presents possible options to 
address  it,  and  assesses  the  impact  of  the  policy  options.  On  the  basis  of  these 
considerations,  a  preferred  option  is  presented  together  with  indicators  to  measure  its 
implementation.  

2.  PROBLEM DEFINITION 

2.1. What is the problem and what are the problem drivers? 

2.1.1. Characteristics of the market and implications for EU competitiveness 

SFTs are mostly interbank transactions with professional intermediaries. Banks accounted 
for 52% of SFTs exposures in September 2023. The concentration of the European SFTs 
market is significant. The first five institutions alone accounted for 49% of the total amount 
of SFTs exposures in September 2023, and the first 10 accounted for 64% 6. 

SFTs  are  mainly  of  very  short-term  maturity:  in  2023,  an  average  of  47%  of  principal 
amounts was initially agreed to have an overnight maturity, i.e. a transaction concluded on 
date T with a maturity date of T+1; in 2022, on average, 21% and 19% of principal amounts 
matured on the reporting date or the day after (T or T+1), respectively. 

EU SFTs are predominantly concentrated in a few Member States, with France being the 
primary domicile holding 55% of EU borrowing in September 2023. Other counterparties 
are  German  (holding  17%  of  EU  borrowing),  Italian  (7%)  and  Irish  (5%).  This 
concentration  may  be  explained  by  the  central  role  of  Central  Counterparty  Clearing 
Houses (CCPs) (LCH, Euronext Clearing and EUREX Clearing) and banks domiciled in 
those Member States and acting as clearing members.  Financial institutions concentrate 
their exposures in Member States where CCPs operate for more efficient risk management 
and  clearing.  CCPs  contribute  to  20%  of  SFTs,  using  SFTs  in  their  cash  reinvestment 
strategy. The significant share held by CCP in the SFT market is linked to the progressive 
entry  into  application  of  Regulation  (EU)  No  648/2012  7  that  aims  to  reduce  systemic 

6 ESMA Market Report on the EU Securities Financing Transactions markets (reference ESMA50-524821-
3147),  published  on  9  April  2024  (https://www.esma.europa.eu/sites/default/files/2024-04/ESMA50-
524821-3147_EU_Securities_Financing_Transactions_markets_2024.pdf) 
7 Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC 
derivatives,  central  counterparties  and  trade  repositories  Text  with  EEA  relevance  (https://eur-
lex.europa.eu/legal-
content/EN/TXT/?toc=OJ%3AL%3A2012%3A201%3ATOC&uri=uriserv%3AOJ.L_.2012.201.01.0001.0
1.ENG) 

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counterparty and operational risk in financial systems and implements a central clearing 
obligation. 

SFTs  are,  among  others,  used  by  broker-dealers  to  conduct  market-making  activities, 
ensuring  the  liquidity  of  sovereign  debt.  As  a  result,  any  potential  change  to  NSFR 
requirements  for  SFTs  would  affect  the  management  and  market-making  activity  of 
sovereign debt issued by Member States, and in particular in those Member States where 
large amounts of sovereign debt are issued. There is a great diversity across Member States 
in the management and market-making activity of sovereign debt. Any potential change to 
NSFR requirements for SFTs would likely affect certain Member States more than others, 
i.e. those where large amounts of sovereign debt are issued (Italy, France, Germany, Spain, 
Belgium) 8 and where prime-brokers and broker-dealers conduct market-making activities 
to ensure the liquidity of their sovereign debt, using SFTs. 

More generally, SFTs are crucial tools for funding markets, enabling banks, dealers and 
investors to get funding for financing their trades. For instance, those willing to purchase 
securities in a leveraged trade, would pledge securities in a securities borrowing transaction 
and  get  the  required  funding  by  just  committing  a  small  fraction  of  their  own  capital 
funding 9 to make the trade possible. 

Since  the  2008  GFC  and  the  collapse  of  the  interbank  unsecured  markets,  SFTs  play  a 
major role in short-term funding between banks and market players through collateralised 
transactions.  In  the  EU,  the  SFTs  market  is  the  largest  segment  of  the  money  market 
denominated in euro, with an average daily trading volume of EUR 698 billion in 2021 
and 2022 (i.e. 56% of the total EUR 1.3 trillion for the money market in euro) and more 
than  EUR  2  trillion  in  outstanding  amount  (i.e. 30%  of  the  total  EUR  7  trillion  for  the 
money market in euro). The daily turnover more than doubled between 2011 and 2021, 
while in the same period the interbank unsecured segment shrank to one tenth of its former 
size. 

Securities  lending  transactions  generally  involve  long  intermediation  chains  where 
collaterals are repeatedly lent out against cash. Thus, the receiver of collateral does not just 
hold it, but actively uses it for other purposes, by lending it on to other counterparties, or 
using  it  in  another  SFT,  thus  gaining  additional  income.  As  a  result,  securities  lending 
transactions are generally rolled over when they mature. In all of this, banks have a central 
intermediation role. 

Short-term SFTs with financial counterparties backed by very-High Quality Liquid Assets 
(Level  1  HQLA),  such  as  sovereign  bonds,  as  set  out  in  Delegated  Regulation  (EU) 
2015/61  supplementing  Regulation  (EU)  No  575/2013  10,  represent  the  largest  money 
market segment (87% of overall collateral of SFTs) 11. The European Central Bank (ECB) 
reports euro-denominated repurchase (repo) activity 12 of the largest euro area banks under 

8 ESMA Market Report on the EU Securities Financing Transactions markets (reference ESMA50-524821-
3147),  published  on  9  April  2024  (https://www.esma.europa.eu/sites/default/files/2024-04/ESMA50-
524821-3147_EU_Securities_Financing_Transactions_markets_2024.pdf) 
9 That fraction corresponds to the portion of the pledged securities that is not recognised by the bank as 
collateral and that remains funded directly by the client. 
10 Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 
575/2013  of  the  European  Parliament  and  the  Council  with  regard  to  liquidity  coverage  requirement  for 
Credit Institutions (https://eur-lex.europa.eu/eli/reg_del/2015/61/oj/eng) 
11  ESMA  Market  Report  on  EU  Securities  Financing  Transactions  markets  2024  (reference  ESMA50-
(https://www.esma.europa.eu/sites/default/files/2024-04/ESMA50-524821-
524821-3147) 
3147_EU_Securities_Financing_Transactions_markets_2024.pdf) 
12 Repurchase (repo) and reverse-repurchase (reverse-repo) transactions are the most prominent type of SFTs. 

4 

 
 
the Money Market Statistical Reporting (MMSR) data. According to this data, cash lending 
repo  transactions  with  financial  counterparties,  with  maturities  of  less  than  six  months, 
represent about EUR 450-600 billion of outstanding volumes. In addition, as explained in 
the  ECB’s  2022  Euro  Money  Market  Study  13,  the  SFTs  market,  in  particular  the  repo 
market, plays a primary role in the transmission of monetary policy (see Section 2.1.2 for 
further details) and the repo and sovereign bond markets are tightly linked. 

A report from the European Securities and Markets Authority (ESMA) on the EU SFTs 
market 14, published in April 2024, shows that during 2023, in the case of EU transactions, 
EU sovereign bonds accounted for 65% of sovereign bonds used as collateral. In contrast, 
US Treasuries and UK Gilts accounted for an average sovereign bond collateral share of 
22% and 8%, respectively. 
SFTs activity is prone to international competition in wholesale markets 15. In the EU, 59% 
of the SFTs amounts are with non-EU counterparties. Counterparties are often from the 
UK (12% of repo and 9% of reverse-repos, in September 2023). Counterparties from the 
US are also  common  (7% of repo and 5% of reverse-repos). Counterparties from  other 
third countries account for 12% of repos and 15% of reverse-repos. Considering that 59% 
of SFTs amounts involve a non-EU counterparty and non-EU banks also have a material 
market share on primary dealing activities, a unilateral increase by the EU in the prudential 
charge that applies to funds due from SFTs, under the NSFR, could lead to a shift of this 
activity to non-EU banks that may operate from non-EU capital markets. A shift of SFTs 
to non-EU capital markets could impact the market making activity on EU sovereign debt 
and on other collateral, undermining the market liquidity of these assets and widening bid-
ask  spreads,  with  potential  higher  costs  for  market  players.  It  will  significantly  and 
negatively  affect  the  perspective  to  develop  capital  markets  in  the  EU  and  increase  the 
dependency of EU market players to non-EU banks and financial intermediaries. 

The share of short-term SFTs with financial counterparties, backed by assets other than 
Level 1 HQLA (i.e. in practice other than sovereign debt), amounts to only around 3% of 
the outstanding volume. The non-Level 1 HQLA market segment is characterised not only 
by a lower overall volume and by higher margins but also by a diverse range of collateral 
types used. 

SFTs and unsecured transactions 

SFTs are an important segment as regards both the asset and liability side of bank balance 
sheets, and are thus relevant for the calculation of the NSFR. These wholesale financial 
transactions  are  defined  under  Article  4(1),  point  139  of  the  CRR  as  encompassing 
different secured transaction types in which assets (collateral) are temporarily exchanged 
for  cash:  (i)  repurchase  (repos)  and  reverse-repurchase  (reverse-repos),  (ii)  securities 
lending, (iii) buy-sell-back, and (iv) margin lending. Repos and reverse-repos make up 

See 

Euro 

money 

13 
(https://www.ecb.europa.eu/pub/euromoneymarket/html/ecb.euromoneymarket202204.en.html) 
14 ESMA Market Report on the EU Securities Financing Transactions markets 2024 (reference ESMA50-
524821-3147)  published  on  9  April  2024 
(https://www.esma.europa.eu/sites/default/files/2024-
04/ESMA50-524821-3147_EU_Securities_Financing_Transactions_markets_2024.pdf 
15 See Table MR-SFT.5 on “Repo borrowing and lending by jurisdiction domicile” of the ESMA Market 
Report  on  EU  Securities  Financing  Transactions  markets  2024    (ESMA50-524821-3147  EU  Securities 
Financing Transactions markets 2024) 

market 

study 

2022 

5 

 
 
 
the largest share of SFTs, accounting for 68% of the total, followed by securities lending 
(23%), buy-sell-back (8%), and margin lending (1%) (September 2023 data) 16. 

A repo is a collateralised and generally short-term borrowing transaction (i.e. cash comes 
in,  while  collateral  goes  out).  A  reverse-repo  is  a  collateralised  lending  transaction, 
reverse  mirroring  a repo transaction, where a bank (the lender) temporarily purchases 
securities or commodities (i.e. collateral) from a counterparty (the borrower) in exchange 
for cash (i.e. cash goes out, while collateral  comes in),  with a commitment to sell the 
collateral back in the future at a predetermined price. 

Conversely,  unsecured  lending  transactions  are  loans  that  are  not  secured  by  any 
collateral. They are based on the borrower’s creditworthiness and promise to repay. 

Since the GFC, there is very little unsecured interbank lending. By contrast, ever since, 
SFTs  play  a  crucial  role  in  the  circulation  of  short-term  funding  between  banks  and 
market players through collateralised transactions.  

SFT market activity also links the short-term money market to the longer-term capital 
market  by  serving  as  funding  market  instrument  for  the  purchase  of  longer-dated 
financial instruments. The bulk of SFTs are collateralised by sovereign debt, where they 
are  characterised  as  a  high-volume,  low-margin  business  activity  for  large  banks. 
Importantly, SFTs are subject to significant international competition, also evidenced by 
the cross-border nature of many of these transactions. As profit margins in repo trading 
are low, even a small change in the regulatory treatment can have an impact on liquidity 
and traded volumes. Repo and sovereign bond markets are also tightly linked. 

2.1.2. Implications for financial stability and impacts on monetary policy 

The 2008 GFC highlighted that SFTs may trigger financial stability concerns due to a lack 
of transparency, excessive leverage, over-reliance on short-term funding, poor collateral 
quality,  interconnectedness/contagion,  and  haircut  procyclicality.  Before  its  collapse, 
Lehman Brothers was funding approximately a quarter of its balance sheet with overnight 
SFTs. A halt in SFTs trades was instrumental in causing its failure in 2008, prompting the 
launch  of  international  reflections  on  setting  up  funding  prudential  risk  metrics  and 
requirements for banks.  

To address this issue, the Basel standards were reformed to include liquidity requirements 
in  the  form  of  the  NSFR  and  the  LCR,  which  have  contributed  to  making  banks  more 
resilient to liquidity risks, including to a potential disruption of the SFTs market 17.  

The EU implemented these Basel requirements for liquidity and funding risks in the CRR. 
Further than the NSFR, other prudential  requirements for banks aim to  avoid excessive 
concentration  risk  on  transactions  with  wholesale  counterparties,  in  particular  the  large 
exposure framework and the additional liquidity monitoring metrics. The LCR is also more 
prone than the NSFR to capture the risk raised by short term transactions. Also, the asset 
encumbrance framework permits to have a clear view on assets, when used as collateral. 
Beyond  micro-prudential  measures,  the  prudential  framework  for  banks  empowers 

16 ESMA  Market Report on the EU securities financing transactions (SFT) markets (reference ESMA50-
524821-3147),  published  on  9  April  2024 
(https://www.esma.europa.eu/sites/default/files/2024-
04/ESMA50-524821-3147_EU_Securities_Financing_Transactions_markets_2024.pdf). 
17  As  mentioned  in  the  introduction,  those  reforms  enabled European  banks  to  withstand  the  COVID-19 
crisis, the September 2022 UK Gilt crisis and the March 2023 banking crisis, in a resilient way. 

6 

 
 
 
competent authorities to address macro-prudential and systemic risks with quantitative and 
qualitative measures. 
In  addition,  Regulation  (EU)  2015/2365  18  (the  ‘Securities  Financing  Transactions 
Regulation’ or ‘SFTR’) improved the transparency and monitoring of SFTs and the early 
identification  of  the  risks  inherent  to  these  transactions,  thereby  strengthening  the  EU 
financial system.  

Before  the  review  of  the  prudential  requirements  for  banks  under  the  CRR  with  the 
introduction of the NSFR and of sounds principles for SFTs under the SFTR, there were 
some  episodes  of  worsening  conditions.  For  instance,  during  the  2010–2012  euro  area 
sovereign  debt  crisis,  market  liquidity  deteriorated  across  all  segments,  and  SFT  rate 
volatility for Italian and Spanish collateral increased much more than in the German and 
French  collateral  segments.  In  December  2011  the  ECB  introduced  Long-Term 
Refinancing  Operations  (LTROs)  and  other  extraordinary  measures  to  stabilize  the 
banking system and ensure a smooth monetary policy transmission. As a result, liquidity 
returned to normal levels, and the dispersion of volatility across segments declined. 

With the launch of ECB’s Public Sector Purchase Programme (PSPP) in March 2015, rate 
volatility increased, particularly for the German collateral segment, reflecting the scarcity 
of collateral and the strong link between the SFTs market and the market for collateral used 
in these transactions. 

During  the  prolonged  period  of  low  interest  rates,  accommodative  monetary  policy 
provided ample central bank liquidity to the market. At the same time, central bank asset 
purchases and CCP collateral requirements reduced the quantity of high-quality collateral 
available in many Member States.  

As  regards  monetary  policy,  in  a  context  of  normalisation,  SFTs  and  unsecured 
transactions are key capital market instruments. The gradual unwinding of central bank 
support through the quantitative tightening of monetary policy and the return of collateral 
to  the  market  have  already  pushed  many  banks  back  into  the  SFTs  market  to  obtain 
financing.  

As monetary policy conditions have normalised, the importance of the SFTs market is set 
to  increase in  the coming years, supporting  the  redistribution of liquidity  and collateral 
between banks and other market participants through secured transactions.  

While less  prominent  since the 2008 GFC, unsecured funding transactions  complement 
secured  transactions  to  redistribute  liquidity  among  financial  intermediaries,  to  support 
capital markets liquidity and an adequate financing of the real economy. 

2.1.3. Transitional prudential treatment under the CRR 

The prudential treatment of short term SFTs is subject to a conservative approach under 
the Basel NSFR standard. It incorporates an asymmetric treatment between liabilities with 
a  residual  maturity  of  less  than  six  months  provided  by  financial  customers  and  assets 
resulting from transactions with a residual maturity of less than six months, with financial 
customers. It is conservative because: (i) short term liabilities from financial customers are 
not recognised as a stable source of funding for the borrowing banks and (ii) a small share 

18  Regulation  (EU)  2015/2365  of  the  European  Parliament  and  of  the  Council  of  25  November  2015  on 
transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 
(https://eur-lex.europa.eu/eli/reg/2015/2365/oj/eng) 

7 

 
 
 
of short-term lending, in particular contractual inflows due from SFTs are considered to be 
long-term commitment for the lending bank, taking into account the frequent practice to 
prolong  funding  support  to  its  clients  (by  rolling-over  the  loan),  as  it  is  expected  that 
lending banks should contribute to maintaining an active SFTs market, at all times.  

Under the Basel standard for the NSFR, when collateralised by Level 1 HQLA, such as 
sovereign bonds, a 10% RSF requirement applies to funds due from SFTs with financial 
counterparts and with a residual maturity of less than six months. This RSF requirement 
amounts  to  15%  when  funds  due  from  SFTs  with  a  residual  maturity  of  less  than  six 
months, with financial counterparts, are collateralised by assets other than Level 1 HQLA 
(i.e. not sovereign bonds). The RSF requirement of 15% also applies to funds due from the 
nowadays less used unsecured transactions, with financial clients, with a residual maturity 
of less than six months. 

No available stable funding is recognised for borrowings with financial customers, with a 
residual  maturity  of  less  than  six  months,  and  hence  under  the  NSFR  a  0%  ASF 
requirement applies to these transactions. 
In  its  proposal  amending  the  CRR,  published  on  23  November  2016  19,  the  European 
Commission suggested a permanent use of lower RSF factors for short-term SFTs (5% if 
collateralised by Level 1 HQLA and 10% otherwise) and unsecured lending (10%) with 
financial  counterparties,  than  the  ones  set  out  in  the  Basel  standard.  The  analysis 
supporting  this  proposal  is  available  in  the  impact  assessment  accompanying  it  20.  The 
Commission concluded at the time that ‘it seems reasonable to bring limited changes to 
the  treatment  of  both  short-term  transactions  with  financial  institutions,  and  of  HQLA 
Level 1 [in order] not to hinder the good functioning of EU financial and repo markets’. 
The Commission also considered that the asymmetric treatment applicable to short-term 
SFTs  could  undermine  the  necessary  market  makers’  inventory  management  21,  which 
would contradict the objectives of efficient banking and capital markets.  The arguments 
and  analysis  leading  to  this  approach  and  the  impact  assessment  accompanying  the 
Commission 2016 proposal are still valid.  

The co-legislators modified the Commission proposal and the final CRR2 provided for an 
even lower transitional RSF requirement of 0% - instead of the required 10% RSF set by 
the  Basel  standards  for  funds  due  from  SFTs  with  maturities  up  to  six  months,  when 
collateralised  with  Level  1  HQLA,  such  as  sovereign  debt.  As  a  result,  during  the 
transitional  phase  lasting  until  28  June  2025,  no  stable  funding  requirement  applies  to 
symmetrical  securities  borrowing  and  securities  lending  transactions  with  a  residual 
maturity of less than six months when collateralised by Level 1 HQLA. This provision was 
however  of  transitional  nature  and  is  set  to  expire  at  the  end  of  June  2025  when  the 

No 

19 Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 
575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible 
liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective 
investment undertakings, large exposures, reporting and disclosure requirements and amending Regulation 
(EU) 
(https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=COM%3A2016%3A0850%3AFIN) 
20  Commission  staff  working  document  and  impact  assessment  accompanying  the  proposal  amending 
Regulation  (EU)  No  575/2013  on  prudential  requirements  for  credit  institutions  and  investment  firms 
(https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD%3A2016%3A0377%3AFIN) 
21 To provide liquidity, market makers carry inventories and bear inventory risk. They manage their inventory 
risk by directly adjusting bid and ask prices to obtain the optimal level of inventory or by hedging against 
inventory risk. Both policies play an important role in determining asset prices and liquidity.  Hedging the 
risk of holding undesired inventory is very important for market makers. 

648/2012 

8 

 
 
calibration  set  out  in  the  Basel  standard  (10%  RSF)  would  start  to  apply  to  these 
transactions.  

Similar transitional provisions were also agreed for funds due from SFTs collateralised by 
assets other than Level 1 HQLA with a residual maturity below six months, and for short-
term unsecured transactions with financial customers. While very important for the market 
liquidity of other collateral than sovereign bonds, for the diversification of the liquidity 
buffer  of  banks  and  for  the  distribution  of  liquidity  across  the  real  economy,  these 
exposures are nowadays relatively small in banks’ balance sheets compared to funds due 
from  SFTs  collateralised  by  Level  1  HQLA.  The  co-legislators  agreed  under  the 
transitional phase lasting until 28 June 2025 to lower the RSF factors for funds due from 
SFTs collateralised by assets other than Level 1 HQLA from 15% to 5% and for short-term 
unsecured loans to financial counterparties from 15% to 10%. No ASF is recognised for 
the  funding  transactions,  even  with  the  same  characteristics  in  terms  of  encumbered 
collateral and maturity. 

These provisions aimed to give banks sufficient time to adapt to the more conservative 
requirement imposed by the Basel standards and to further assess and mitigate  negative 
effects on the sovereign debt and capital markets.  

The  current  requirements  have  proven  to  be  prudentially  sound  since  their  entry  into 
application in mid-2021 and have not raised financial stability concerns so far, including 
during  recent  stress  episodes  (March  2023  banking  turmoil,  UK  Gilt  crisis,  Russian 
aggression) albeit these stress episodes did not reach the magnitude of the GFC or the euro 
area sovereign debt crisis and took place in an environment of high excess liquidity. EU 
banks are characterised by significant NSFR buffers above their minimum requirements 
and their funding capacity is being supervised on a continuous basis. 

Nevertheless, after 28 June 2025, the RSF requirements for SFTs with a residual maturity 
of  less  than  six  months  and  from  short-term  unsecured  transactions  with  financial 
customers are set to go up, consistently with the Basel standard, while the ASF requirement 
for the symmetrical transactions, would remain at 0%. 

2.1.4.  The  European  Banking  Authority  (EBA)  report  on  the  end  of  the 

transitional treatment 

Under Article 510(4), (6) and (9) of the CRR2, the EBA was mandated to evaluate the 
prudential treatment of several items under the NSFR framework. Under this mandate the 
EBA analysed the impact on the NSFR level of ending the transitional RSF requirements 
applicable  to  SFTs  and  unsecured  funding  transactions  of  less  than  six  months,  with 
financial counterparties. 

The  EBA  report  on  specific  aspects  of  the  NSFR  framework  22  (the  ‘EBA  report’), 
published on 16 January 2024, concludes that the end of the transitional treatment only 
will have a limited impact on the NSFR levels of EU banks.  

22  The  EBA  publishes  an  analysis  of  specific  aspects  of  the  net  stable  funding  ratio  framework 
(https://www.eba.europa.eu/sites/default/files/2024-01/8d7c0d40-2d79-4763-bd9c-
ad66c0bf4076/Report%20on%20specific%20aspects%20of%20the%20NSFR%20framework%20under%2
0Art%20510%20CRR.pdf) 

9 

 
 
 
The  EBA  report  is  based  on  qualitative  analysis  informed  by  expert  judgement, 
supplemented  by  some  materiality  and  sensitivity  analyses  using  supervisory  reporting 
data from more than 2 300 institutions, including both major and small/local institutions.  

As  of  30  June  2024,  1  695  banks  had  reported  exposures  to  SFTs  or  from  unsecured 
transactions of less than six months, with financial counterparties. The increase in the RSF 
factor would decrease the NSFR ratio of the banks concerned on average from 128.6% to 
127.4% (-1.2pp), which is well above the minimum threshold of a 100% NSFR. 

According to the EBA, banks’ management buffers for net stable funding can absorb the 
end of the transitional treatment, with very limited impacts on the NSFR ratio. The EBA 
concludes that changes to the current legislation are not necessary. 

While  the  EBA  report’s  conclusions  are  a  valuable  contribution  to  assessing  the 
implications of the end of the transitional treatment, the Commission considers that other 
factors should also be considered, as developed below. 

2.1.5. The NSFR requirement in third countries 

Maintaining a level playing field at international level is a key consideration for the Basel 
framework and the EU‘s implementation of it. The Basel NSFR standard was designed as 
a  globally  consistent  regulatory  requirement,  aiming  to  foster  convergence  across 
jurisdictions and eliminate opportunities for cross-border regulatory arbitrage. 

The Commission’s monitoring of NSFR implementation across jurisdictions shows that 
other  major  jurisdictions,  notably  the  United  States,  the  United  Kingdom,  Switzerland, 
Canada and Japan, are permanently deviating from the Basel NSFR standard as regards 
the calibration of stable funding requirements applicable to SFTs with a residual maturity 
of less than six months and collateralised by high quality collateral. 

The  US  agencies  argue  that  ‘the  0%  RSF  factor  assignment  was  made  based  on  the 
determination that Level 1 HQLA pose minimal liquidity risk and contribute importantly 
to the good functioning of short-term funding markets, i.e. that a non-zero RSF factor on 
Level 1 HQLA could discourage intermediation in US Treasury and repo markets’ 23.  

The transitional treatment set  by the CRR2 keeps the EU funding requirements aligned 
with other key jurisdictions. Maintaining this treatment will avoid any unilateral departure 
from the international consensus that may affect the level playing field for EU banks in an 
area  which  is  particularly  prone  to  international  competition.  In  other  words,  if  the  EU 
followed the international standards, while major non-EU jurisdictions did not, the result 
could  be  an  uneven  international  playing  field  with  negative  effect  as  regards  the 
competitive situation of EU banks active in the SFTs market, that may impair the effective 
development  and  the  well-functioning  of  capital  markets  in  the  EU,  in  particular  on 
sovereign  bonds.  UK  and  US  banks  could  have  an  undue  competitive  advantage  in 
providing reverse repos to EU banks. (via EU CCPs or via the provision of direct banking 
services to EU banks from their home jurisdiction).   

23 See the July 2023 BCBS assessment of Basel NSFR regulations - United States. To note that the US is 
deemed “largely compliant”, despite the permanent deviation. 

10 

 
 
 
 
2.1.6. Implications for banks active in the EU capital markets 

Banks  have  called  on  the  Commission  to  maintain  the  transitional  treatment  and  avoid 
increasing the RSF factor. They raised concerns about their need to maintain, after June 
2025, the same level of NSFR management buffers. The end of the transitional treatment 
and the subsequent impact on the level of the NSFR could therefore oblige them to raise 
additional  long-term  stable  funding  on  capital  markets  and  to  pass  the  funding  charge 
increase to their clients. 

According to regulatory common reporting (CoRep) data, for banks supervised in the EU 
at  Q2-2024,  the  end  of  the  transitional  treatment  on  28  June  2025  would  result  in  a 
cumulative longer-term funding need of approximatively EUR 300 billion (0.9% of total 
EU banking assets), to offset the impact 24. This estimate represents an upper limit to the 
impact, as banks are likely to adjust their NSFR and the volume of their SFT business in 
response to increased RSF factors, thereby lowering the additional funding needs. 

The magnitude of the impact varies across bank business models. Large EU corporate and 
investment banks would be more affected than local retail credit institutions. There would 
also be an impact on subsidiaries of non-EU banking groups based in the EU  25 and for 
subsidiaries  of  EU  banking  groups  operating  in  non-EU  countries,  considering  the  risk 
profile of some of these institutions operating on wholesale transactions as primary dealers 
for governments bonds and as broker-dealers on capital markets.  

Another concern raised by banks is a risk of SFTs activity shifting to non-EU countries 
that  apply  lower  RSF  factors  than  what  the  EU  could  apply  after  June  2025.  For  third 
country  banking  groups  operating  in  the  EU,  SFTs  are  normally  carried  out  by  EU 
subsidiaries, which would be subject to the same NSFR requirements as the ones that apply 
to EU banking groups. However, third country banking groups might be able to shift those 
activities to EU branches or cross-border operations, and as such neutralise the increase in 
the RSF in the EU. This situation would, without specific EU action, lead to an uneven 
international playing field where non-EU banks may gain market share over EU banks. 

Shifting activity to an entity based in a non-EU country could be a feasible option for a 
banking group which is not consolidated in the EU, to avoid higher regulatory costs. As a 
result, if RSF factors are raised in the EU but stay below the Basel requirement in some 
non-EU  countries,  banks  from  those  countries  could  have  a  competitive  advantage.  In 
practice, the incentive to enter the market for third country banking groups will depend on 
how much EU banks pass on the increase in the prudential cost that is expected after June 
2025 in the bid-ask spread. 

It is important to recall that third country banking groups already have significant market 
shares in EU primary dealing markets. 

24 EUR 179.4 billion, in case of an increase of the RSF from 0% to 10% for SFTs collateralised by Level 1 
HQLA. EUR 84.2 billion, in case of an increase of the RSF from 5% to 15% for SFTs collateralised by other 
assets (i.e. non-Level 1 HQLA). EUR 36.2 billion, in case of an increase of the RSF from 10% to 15% for 
unsecured financing transactions with financial counterparties. 
25 According to ad-hoc EBA analysis, under certain conditions, two subsidiaries of third-country banking 
groups may be particularly affected by the end of the transitional treatment. 

11 

 
 
 
2.1.7. Intermediation in the EU government debt market 

Section  2.1.1.  underlines  that  the  SFTs  market  and  the  sovereign  bonds  market  are 
interlinked. EU sovereign bonds account for 65% of sovereign bonds used as collateral. 

An  increase  in  the  RSF  level  applicable  to  SFTs  could  discourage  EU  banks  from 
intermediating  in  government  debt  and  affect  the  liquidity  in  the  collateral  markets 
concerned. This could also lead to higher bid-ask spreads and an increase in funding costs 
for  Member  States  in  a  period  of  normalised  monetary  policy  when  central  banks  are 
expected to reduce their market presence and private market players are expected to take 
over. 

2.1.8. Supporting diversification in the liquidity buffer of banks  

The  LCR  aims  to  make  sure  banks  have  a  buffer  of  liquid  assets  that  can  be  easily 
transformed into cash through SFTs or by monetising liquid assets in a 30-day liquidity 
stress scenario. As such, SFTs are crucial capital market instruments for making the LCR 
prudential ratio work smoothly.  

Maintaining  the  transitional  treatment  for  funds  due  from  SFTs  collateralised  by  assets 
other than Level 1 HQLA (i.e. other than sovereign bonds) would also support the liquidity 
and diversity of assets that are also eligible for the liquidity buffer of banks under the LCR. 
As such, maintaining such a treatment would also contribute to mitigating the sovereign-
bank nexus, through a better liquidity and an increased availability of collateral assets other 
than  sovereign  bonds.  In  consequence,  it  is  useful  to  maintain  the  current  prudential 
requirements for those assets as well.  

An increase in the RSF factor for unsecured transactions would have a negligible impact 
on the NSFR levels on aggregate. This can be interpreted in two ways: On the one hand, it 
could  allow  banks  to  absorb  the  impact  with  small  effects  on  their  unsecured  lending 
activities. On the other hand, it would not materially strengthen the prudential profile of 
banks  26, while it may disincentivise the use of unsecured funding transactions that may 
prove  helpful  in  a  period  of  monetary  policy  tightening. Indeed,  a  non-zero  RSF  factor 
already applies to short-term unsecured transactions under the NSFR. Keeping the RSF 
factor  that  applies  since  June  2021  to  short-term  unsecured  transactions  with  financial 
customers will contribute to the use of these transactions in a context of monetary policy 
tightening, as a complement to SFTs to redistribute liquidity across market players. This 
would in turn support overall capital markets liquidity and ultimately an adequate financing 
of the real economy. 

SFTs and unsecured transactions support monetary policy transmission and liquid and deep 
bond and collateral  markets that are essential for the build-up and the efficiency of the 
liquid buffer of banks. 

26  The  EBA  publishes  an  analysis  of  specific  aspects  of  the  net  stable  funding  ratio  framework 
(https://www.eba.europa.eu/sites/default/files/2024-01/8d7c0d40-2d79-4763-bd9c-
ad66c0bf4076/Report%20on%20specific%20aspects%20of%20the%20NSFR%20framework%20under%2
0Art%20510%20CRR.pdf) 

12 

 
 
 
 
2.1.9. Concerns raised by other stakeholders 

The Commission has conducted a call for evidence 27 between 10 February and 10 March 
2025. 27 stakeholders 28 answered the call for evidence. The respondents are mostly bank 
associations (13) and banks (8), but other stakeholders (public authorities (1), non-bank 
associations (3) and private companies (2)) also contributed to share intelligence on the 
targeted amendment to the CRR envisaged by the European Commission for the prudential 
treatment  of  short  term  SFTs  and  unsecured  transactions  with  financial  counterparties 
under the NSFR. The ECB also published a staff response to the call for evidence on its 
website 29. 

Respondents  broadly  concur  with  the  Commission’s  understanding  of  the  situation  and 
support the initiative to submit a targeted proposal to the co-legislators. 

All  respondents  stress  that  the  absence  of  a  proposal  will  create  an  unequal  prudential 
treatment for identical business activities in the EU and in third country jurisdictions, with 
detrimental impact on the EU market. 

They call on the European Commission to submit a legislative proposal to the European 
Parliament and to the Council shortly after the call for evidence, for a swift adoption of the 
proposal. They ask to avoid a discontinuation in the current NSFR treatment, which would 
carry the risk of sudden and erratic changes in the prudential treatment of banks exposures 
to  the  transactions  concerned,  with  impacts  on  short  term  liquidity  markets  and  bonds 
markets in a context of growing government financing needs (green and digital transition, 
defence,  etc.).  Market  players  also  underline  that  short  term  SFTs  and  unsecured 
transactions contribute to the smooth functioning of money markets and to the transmission 
of the monetary policy. 

A majority of stakeholders ask to make the treatment permanent beyond 28 June 2025. In 
a scenario of a prolongation of the transitional treatment, some respondents support the 
perspective to mandate the EBA to deliver a recurrent report. Others do not see the benefit 
of the mandate for the EBA to deliver a regular monitoring report in addition to the ongoing 
supervision  by  competent  authorities  and  the  market  monitoring  by  central  banks.  Few 
respondents suggest a time-limited extension of the transitional treatment. Legal certainty 
for market players and putting EU market players on an equal footing compared to their 
peers in third country major jurisdictions are important considerations for respondents that 
also underline the importance for the EU to build efficient banking and capital markets.  

A couple of stakeholders also underline that maintaining the transitional treatment for SFTs 
and unsecured transactions under the NSFR will contribute to the competitiveness of the 
EU, that the European Commission is placing at the heart of its economic agenda. 

Very few respondents suggest a wider review of the NSFR or of the CRR, more generally. 
It should be noted that going beyond the targeted nature of the proposal would impair the 
capacity to ensure its swift adoption. 

27 Net Stable Funding Ratio – prudential treatment of short-term securities financing transactions (amending 
regulation) 
(https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/14518-Net-Stable-
Funding-Ratio-prudential-treatment-of-short-term-securities-financing-transactions-amending-regulation-
_en) 
28 Respondents from 11 Members States (Austria, Belgium, Denmark, France, Germany, Italy, Netherlands, 
Poland, Romania, Spain and Sweden) and from one third country (Switzerland). 
29  ECB  staff  response  to  the  European  Commission’s  call  for  evidence  on  a  targeted  amendment  to  the 
prudential 
the  net  stable  funding  ratio. 
(https://www.ecb.europa.eu/press/letters/pdf/ecb.letter202503_treatmentSFTsNSFR~1a87de9de5.en.pdf) 

treatment  of  securities  financing 

transactions  under 

13 

 
 
2.2. How will the problems evolve? 

The  fact  that  other  major  jurisdictions  have  not  implemented  the  Basel  NSFR  standard 
suggests that there could be negative effects associated with higher RSF factors for SFTs. 
SFTs are key transactions for the good functioning of the short-term funding markets and 
for the liquidity of the underlying assets used as collateral, in particular sovereign bonds. 

A reduction in the liquidity of the EU capital markets could be a consequence of a unilateral 
increase by the EU of the funding charge being applied to transactions intermediated by 
EU banks. Third country institutions that already intermediate 59% of the amount of SFTs 
in the EU could profit from regulatory arbitrage and move part of their activity to non-EU 
markets  if  bid-ask  spreads  for  transactions  in  the  EU  are  negatively  impacted  by  the 
increase in the prudential charge, while it will not be the case in non-EU markets. Non-EU 
banks may gain market share over the few EU banks active on this market, based on an 
unlevel international playing field. 

More conservative RSF could lead to higher bid-ask spreads for EU sovereign bonds and 
other underlying collateral with implications for issuers and for securities inventory. The 
reduced attractiveness and liquidity of SFTs could negatively affect the liquidity of high-
quality liquid assets eligible to the LCR liquidity buffer of EU banks. 

The  transmission  of  monetary  policy  to  the  real  economy  could  be  negatively  affected 
since the attractiveness of SFTs and unsecured funding transactions would be reduced by 
the  stricter  RSF  requirements  for  such  transactions  in  a  period  of  normalised  monetary 
policy, when central banks are expected to reduce their market presence and private market 
players are expected to take over. 

3. OBJECTIVES: WHAT IS TO BE ACHIEVED? 

3.1. General objectives 

This initiative has two general objectives.  

1.  Ensure an international level playing field for prudential requirements 

The  prudential  requirements  applicable  in  the  EU  since  June  2021  have  not  raised 
supervisory concerns for banks, even in periods of stress. EU banks have built up strong 
NSFR  buffers,  beyond  minimum  requirements.  EU  banks  are  also  subject  to  an 
ongoing supervision. 

The decision made by other jurisdictions for a permanent symmetric treatment for SFTs 
collateralised  by  Level  1  HQLA  poses  minimal  liquidity  risk  and  contributes 
significantly to the good functioning of short-term funding markets. 

A de facto level playing field is created by aligning with the treatment in third-country 
jurisdictions.  Absent  compelling  reasons,  the  EU  should  not  unilaterally  tighten  the 
prudential  treatment  for  transactions  that  are  subject  to  significant  international 
competition. That being said, as for other jurisdictions, deviating from the Basel NSFR 
standard may impact the overall assessment of the EU’s compliance with Basel NSFR 
standard. This will however depend on the materiality of the impact on the level of the 
NSFR, so a future adjustment of the compliance assessment remains uncertain. In any 

14 

 
 
 
case the EU would remain aligned with the approach of ohtrer jurisdictions (de facto 
international level playing field). 

2.  Avoid damaging the banking and capital markets in the EU 

The EU economy heavily relies on financing provided by the banking sector. While 
not materially strengthening the level of the NSFR buffer for EU banks, increasing the 
level  of  the  RSF  factor  will  increase  the  charge  for  funding  due  from  SFTs  and 
unsecured transactions and may undermine banks’ market-making activities. 

SFTs play a crucial role in funding markets, linking the short-term money market to 
the longer-term capital market. The SFTs market could become less active and liquid 
because of higher RSF factors. This could have repercussions for several asset classes 
due to the crucial nature of SFTs markets in funding many types of collateral purchases 
and in transmitting monetary policy to the real economy. 

The  impact  assessment  accompanying  the  draft  CRR2  already  stated  that  ‘the  vast 
majority of respondents to the call for evidence and the NSFR targeted consultation 
expressed concerns on this asymmetry that could be very detrimental to market making 
activities and, as a consequence, to the liquidity of repo market and of the underlying 
collateral. Repo markets are presented as essential for the smooth functioning of both 
banks’  liquidity  management  and  market  makers'  inventory  management.  This 
treatment also raises some concerns regarding the impact on the interbank markets, in 
particular  for  liquidity  management  purposes.  It  may  then  affect  the  liquidity  of 
interbank  markets,  of  the  securities  (including  sovereign  bonds)  and  undermine 
market-making activities.’ These arguments remain valid. 

3.2. Specific objectives 

The two general objectives pursued by this initiative can be broken down into the  four 
specific objectives described below.  

1.  Prevent regulatory arbitrage risk in a very competitive market 

To maintain consistency and prevent regulatory arbitrage risk in the very competitive 
and  cross-border  SFTs  market,  the  Commission  proposes  to  maintain  the  current 
prudential treatment applicable in the EU. This approach is in line with the one retained 
and applied in other major jurisdictions. 

This alignment with how the Basel standard requirements are implemented in major 
third countries does not prevent raising the point in international fora on the differences 
between  the  calibration  internationally  agreed  in  the  Basel  standard  and  its  actual 
implementation, 
to  cross-border  competitive 
transactions. 

in  particular  when  applicable 

2.  Make  the  NSFR  treatment  for  SFTs  consistent  with  other  prudential 

requirements for banks 

15 

 
 
SFTs support the swift and orderly transformation of collateral into cash. A damaged 
SFTs market could negatively affect the effectiveness of the LCR, another prudential 
liquidity requirement for banks. The LCR aims to make sure banks have a buffer of 
liquid assets that can be easily transformed into cash through SFTs or by monetising 
liquid assets in a 30-day liquidity stress scenario. 

3.  Avoid increasing the bid-ask spreads for EU sovereign bonds 

Increasing the NSFR funding charge applicable to short term SFTs when collateralised 
by Level 1 HQLA, such as sovereign bonds, could impact the price banks offer for 
short-term  SFTs  with  such  collateral  and  reduce  the  liquidity  of  sovereign  bond 
markets. 

4.  Make banks operate on liquid markets with a diversity of collateral assets 

Maintaining the transitional RSF treatment for short-term SFTs collateralised by assets 
other  than  sovereign  bonds  supports  diversification  in  banks’  liquidity  buffers, 
contributes not to increase the pressure on scarce very high-quality collateral such as 
government bonds, and helps mitigate the sovereign-bank nexus.  

Maintaining the current RSF prudential charge for short-term unsecured transactions 
with  financial  counterparts  supports  the  use  of  unsecured  funding  transactions  as  a 
necessary complement to secured funding transactions such as SFTs, to support overall 
market  liquidity  and  monetary  policy  transmission,  in  particular  during  periods  of 
monetary  policy  tightening  when  central  banks  are  expected  to  reduce  their  market 
presence and private market players are expected to take over. 

4. WHAT ARE THE AVAILABLE POLICY OPTIONS? 

4.1.  What is the baseline on which options are assessed? 

The baseline option assumes no legislative change to the prudential framework applicable 
at EU level. 

Under this option, the RSF funding charge would increase after 28 June 2025, as specified 
under Article 510(8) of the CRR2. The RSF for SFTs collateralised by Level 1 HQLA, by 
other assets, and for unsecured transactions with a residual maturity of less than six months, 
with  financial  customers,  will  increase  from  0%,  5%  and  10%  to  10%,  15%  and  15%, 
respectively.  

Figure 1 presents, under the baseline option, the potential adjustments in bank behaviour30 
to an increase of the prudential charge for SFTs and unsecured transactions, with a residual 
maturity of less than six months, with financial counterparts. These stylised actions are not 
mutually exclusive, and the aggregated outcome will likely encompass a combination of 
the potential adjustments. 

30 A reduced NSFR level is the mechanic implication of an increase in the RSF for the transactions concerned. 
Allowing a reduced NSFR level would be another option for banks, but banks argue that they will have to 
defend and uphold their NSFR levels due to investor and supervisory expectations. 

16 

 
 
 
Figure 1 – Stylised bank reaction to an increase in RSF requirement 

Non-EU banks may move the 
activity to non-EU markets 

Increase in the RSF for SFTs 
and unsecured transactions 

Pass part of the increase to 
bid-ask spreads and to clients 

￼

Reduce market making on 
these segments of the market 

The extent to which a bank will maintain its NSFR buffer level or will be able to pass on 
the cost of doing so in its internal cost-transfer pricing model, will depend on an individual 
bank’s NSFR level, its internal target for the NSFR, its business model and its associated 
market positioning, as well as on potential dynamic behavioural effects from other banks. 
Some  banks  underline  that  they  have  to  defend  their  existing  NSFR  levels  due  to 
supervisory or investor expectations.  

The Common Reporting (CoRep) templates to monitor banks exposures may need to be 
amended to capture the new RSF requirements that will apply beyond 28 June 2025. 

4.1.1. Volume impacted 

In terms of impact on additional long term funding needs, there is a variety of estimates 
from market participants, ranging from EUR 80 billion  31 to EUR 246 billion  32. These 
figures correspond to 0.24% and 0.74% of total EU banking assets. 

Based  on  the  ECB’s  Money  Market  Statistical  Reporting,  which  records  the  euro 
denominated  SFTs  activity  of  the  largest  euro  area  banks,  the  euro  denominated  SFTs 
market  is  approaching  EUR  600  billion  33  of  SFTs  to  financial  counterparties,  with 
government bonds and a maturity of less than six months, as of Q2-2024. Applying to these 
transactions the changes specified in Article 510(8) of the CRR2 (i.e. increase of the RSF 
factor from 0% to 10%) would result in an additional requirement of EUR 60 billion in 
long term stable funding. In addition, 3% to 6% 34 of the outstanding volume reported in 
MMSR would be categorised as short-term SFTs with financial counterparties backed by 

31  Association  for  Financial  Markets  in  Europe,  „CRD  5:  The  Net  Stable  Funding  Ratio“,  March  2017 
(https://www.afme.eu/portals/0/globalassets/downloads/briefing-notes/2017/afme-prd-nsfr-non-technical-
paper.pdf)  
32  International  Capital  Market  Association  (ICMA),  „NSFR  and  Reverse  Repo“,  May  2024 
(https://www.icmagroup.org/assets/ICMA-ERCC_BN_NSFR-and-reverse-repo_May-2024_Final.pdf) 
33 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 
34 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 

17 

 
 
 
 
 
non-Level 1 HQLA. For these transactions the RSF factor would increase from 5% to 15%, 
prompting an additional EUR 25 billion 35 in stable funding. 

According to regulatory common reporting (CoRep) data 36, for all banks supervised in the 
EU at Q2-2024, the end of the transitional treatment on 28 June 2025 would, all else equal, 
result in a cumulative funding need of approximatively EUR 300 billion 37, to fully offset 
the impact. 

There  are  limits  to  the  reliability  of  the  above  estimates  as  estimates  typically  do  not 
account for the netting of repos and reverse repos to the same counterparty and matching 
maturities.  

4.1.2. Additional cost  

Focusing on SFTs collateralised by Level 1 HQLA, the likely pass-through of the costs 
related to the introduction of non-neutral RSF factor may result in a higher bid-ask spread. 
Based on ECB estimations, assuming a full pass-through of the 10% increase in the RSF 
factor  for the SFTs  affected  indicate a  range of price increases between 2  and 10 basis 
points (bps) 38. Estimates lie between a lower-bound of 3 bps to an upper bound of 9 bps, 
which represents a material increase considering the high-volume, low-margin nature of 
the business activity with currently persisting bid-ask spreads of 1 to 3 bps 39. This increase 
in the prudential charge could hence have repercussions on transactions collateralised by 
sovereign  bonds,  but  also  more  generally  on  primary  and  secondary  markets  for 
government  bonds.  Other  asset  classes  and  activities  may  also  be  impacted  due  to  the 
interconnected nature of SFTs markets with sovereign bonds and other collateral markets 
(bond trading, bond futures, short selling of bonds). 

Similarly,  after  end-June  2025,  the  RSF  for  SFTs  backed  by  assets  other  than  Level  1 
HQLA will go up from 5% to  15%. This may lead to  a further increase of the cost  for 
transactions, ranging between 4 bps to 8 bps 40 depending on the degree of compensation 
by  banks  (i.e.  the  extent  to  which  it  would  be  passed-through).  This  cost  increase  may 
affect all market participants on collateral markets considering the diversity of assets used 
in these transactions. 

That being said, the degree to which regulatory costs are passed on is very hard to estimate, 
especially  as  most  market  maker  banks  still  operate  well  above  the  NSFR  minimum 
requirement and above their internal target levels. If banks chose to operate with a lower 
buffer above the NSFR requirement (and their internal target levels), the estimated pricing 
impact on affected reverse repo transactions could be limited. 

35 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 
36 EBA data based on Common Reporting (CoRep) - European Union area perimeter 
37  EUR  179.4  billion,  in  case  of  an  increase  of  the  RSF  from  0%  to  10%  for  monies  due  from  SFTs 
collateralised by Level 1 HQLA. EUR 84.2 billion, in case of an increase of the RSF from 5% to 15% for 
monies due from SFTs collateralised by other assets (i.e. non-Level 1 HQLA). EUR 36.2 billion, in case of 
an increase of the RSF from 10% to 15% for unsecured financing transactions with financial counterparties. 
38 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 
39 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 
40 Commission evaluation based on ECB data. 

18 

 
 
 
These additional costs would come with no significant benefit in terms of financial stability 
enhancement.  Under  the  transitional  treatment  there  were  no  significant  prudential 
concerns, despite significant shocks (Covid-19, 2023 banking turmoil). 

In light of the above,  allowing the transitional measure to elapse is not considered as  a 
preferred policy option, while acknowledging the potential trade-offs for financial stability 
and  the  EU’s  Basel  compliance.  Two  alternative  options  are  therefore  considered  and 
compared  below  for  maintaining  the  current  NSFR  treatment  for  short-term  SFTs  and 
unsecured  transactions  with  financial  customers.  A  distinction  between  both  options  is 
introduced as to the nature of transactions concerned.  

4.2.  Description and assessment of policy options  

Option 1 - Maintain the transitional treatment for SFTs collateralised by Level 1 HQLA  

This  option  would  maintain  the  NSFR  transitional  treatment  for  SFTs  collateralised  by 
Level 1 HQLA such as sovereign bonds, with a residual maturity of less than six months, 
with  financial  customers,  also  beyond  end-June  2025.  For  SFTs  collateralised  by  other 
assets and for unsecured transactions the transitional treatment would end after 28 June 
2025. 

This  option  would  make  the  stable  funding  requirement  for  the  transactions  concerned 
consistent and comparable with the one applied in other major jurisdictions such as the 
United  States,  the  United  Kingdom,  Switzerland  and  Japan.  It  would  also  prevent  the 
sovereign  debt  market  from  experiencing  a  potential  increase  in  the  prudential  charge 
applicable to debt issued by EU Member States and to NextGenerationEU bonds. 

This option would reduce the risk of regulatory arbitrage in this very competitive and cross-
border activity, with a limited impact on the level of the NSFR requirement applicable to 
banks, in the EU. 

Maintaining  the  transitional  treatment  without  expiry  date  will  give  clarity  and  legal 
certainty  to  banks  and  other  market  participants.  This  will  also  be  consistent  with  the 
approach retained in other major jurisdictions. 

Under this option, banks may not have to further increase their liquidity buffer under the 
NSFR and might be more vulnerable to liquidity shocks. At the same time, EU banks are 
already  characterised  by  significant  NSFR  buffers,  above  the  minimum  threshold  of  a 
100% NSFR.  The costs in terms of financial stability risks do not appear significant.  

In terms of benefits, banks could rely on more short-term funding (between EUR 60 billion 
41 and EUR 246 billion 42, corresponding to 0.24% and 0.74% of total EU banking assets) 
lowering their funding costs and supporting SFT market liquidity instead of having to rely 
on more stable funding sources. Banks, market participants on sovereign debt markets and 
Member States will be preserved from an increase of the bid-ask spread on short-term SFTs 
backed by Level 1 HQLA such as sovereign bonds.  

41 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 
42  International  Capital  Market  Association  (ICMA),  „NSFR  and  Reverse  Repo“,  May  2024 
(https://www.icmagroup.org/assets/ICMA-ERCC_BN_NSFR-and-reverse-repo_May-2024_Final.pdf) 

19 

 
 
 
 
Under  this  option,  the  EBA  will  be  mandated  to  assess  and  report  regularly  on  the 
implications of maintaining the transitional treatment. This report that could be part of the 
proposal  would  enable  the  Commission  to  draw  up  a  legislative  proposal  to  amend  the 
prudential  treatment,  if  deemed useful. This  will come in  addition  to  the monitoring of 
capital market developments by central banks and to the ongoing supervision by competent 
authorities. 

However,  under  this  option,  an  increase  in  stable  funding  would  still  be  introduced  for 
short  term  SFTs  with  non-Level  1  HQLA  collateral  and  for  short  term  unsecured 
transactions. The additional funding need may span from EUR 25 billion  43 to EUR 84 
billion 44 (0.08% to 0.25% of total EU banking assets) in case of an increase of the RSF 
from 5% to 15% for monies due from SFTs collateralised by assets other Level 1 HQLA. 
It may reach EUR 36.2 billion 45, in case of an increase of the RSF from 10% to 15% for 
short-term unsecured transactions with financial counterparties.  

This  increase  would  likely  affect  the  liquidity  of  the  underlying  collateral  markets  and 
reinforce  the  incentives  towards  sovereign  bonds  holdings,  thereby  undermining  the 
diversification of liquidity buffer held by banks. 

Option 2 - Maintain the transitional treatment for all SFTs and unsecured transactions 
with a residual maturity of less than six months with financial customers  

This option will not only prolong the NSFR transitional treatment proposed under option 
1 for SFTs collateralised by Level 1 HQLA, but also maintain the current RSF prudential 
charge for SFTs collateralised by other assets (5%) and for unsecured transactions (10%) 
with no material impact on the level of the NSFR buffer for EU banks.  

Under this option, the cost would be the absence of higher NSFR prudential buffers due to 
more comprehensive RSF factors not only for SFTs collateralised by Level 1 HQLA, but 
also for SFTs collateralised by other assets and unsecured transactions, and a gap between 
the standard internationally agreed and the one applied in the EU. In other words, banks 
could rely on additional EUR 300 billion 46  

(0.9%  of  EU  banking  assets)  of  short-term  funding  compared  to  the  baseline  scenario, 
lowering  their  funding  costs  and  supporting  market  liquidity.  Beyond  the  benefits 
mentioned for option 1, market participants in all capital markets, and not only those on 
sovereign bond markets, will be preserved from an increase of the bid-ask spread on short 
term SFTs and unsecured transactions. Option 2 will maintain consistency in the steps (i.e. 
difference in the prudential charge) between the RSF factors that apply to monies due from 
SFTs collateralised by sovereign bonds and monies due from SFTs collateralised by other 
assets.  It  will  permit  to  mitigate  the  pressure  on  (scarce)  high  quality  collateral. These 
would represent higher benefits than under option 1. 

Extending the perimeter to SFTs collateralised by assets other than Level 1 HQLA will 
support the liquidity and diversity of assets that are also eligible to the liquidity buffer of 

43 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 
44 EBA data based on Common Reporting (CoRep) - European Union area perimeter 
45 EBA data based on Common Reporting (CoRep) - European Union area perimeter 
46 EBA data based on Common Reporting (CoRep) - European Union area perimeter 

20 

 
 
 
banks under the LCR. It seems appropriate not to disconnect the two dimensions of the 
liquidity requirements that pursue complementary objectives.  

Option 2 will permit to maintain the (10%) RSF for unsecured transactions that may prove 
helpful for market transactions as a complement to secured transactions such as SFTs, in a 
period  of  change  in  the  monetary  policy  when  private  market  players  are  expected  to 
increase their market presence.  

5. HOW DO THE DIFFERENT POLICY OPTIONS COMPARE? 

Option  1  would  address  the  primary  concern  surrounding  the  end  of  the  transitional 
treatment applicable to SFTs of less than six months when collateralised by Level 1 HQLA. 
It would target low-margin high-volume transactions for banks and prevent an increase in 
the  funding  charge  for  EU  sovereign  debt.  This  will  ensure  that  the  EU’s  treatment  is 
consistent and comparable with that of other major jurisdictions. This will preserve the EU 
from the risk of regulatory arbitrage on the sovereign debt collateral market. The steady 
state nature of this option  will also give clarity to market participants on the prudential 
requirement that will apply to this activity. The continuation of the transitional treatment 
from 29 June 2025 onwards will ensure continuity and no erratic changes will be enacted 
to  the  prudential  charge,  which  would  otherwise  adversely  affect  the  liquidity  of  the 
market.  

Under this option, the increase of the prudential charge for SFTs collateralised by other 
assets may impair the effective liquidity of assets other than sovereign bonds in the EU 
capital markets and the diversity of collateral eligible for the liquidity buffer of banks. The 
increase  in  the  prudential  charge  for  SFTs  collateralised  by  other  assets  and  unsecured 
transactions may also impair the attractiveness of these transactions for market participants 
and the effective transmission of the monetary policy to the real economy through short-
term  markets.  The  market  monitoring  by  central  banks  and  the  ongoing  banking 
supervision  by  competent  authorities  will  contribute  to  the  constant  screening  of 
stakeholders’  practices  and  as  safety  layer  against  potential  future  financial  stability 
concerns  due  to  the  absence  of  further  increase  of  the  NSFR  prudential  charge  for  the 
concerned transactions.  

Option  2  proposes  maintaining  the  transitional  treatment  for  monies  due  from  SFTs 
collateralised by Level 1 HQLA (as for option 1), but also for SFTs collateralised by other 
assets and for unsecured transactions with a residual maturity of less than six months, with 
financial counterparties. 

This  option  will  prevent  the  EU  from  the  risk  of  regulatory  arbitrage  on  transactions 
collateralised by sovereign debt, that represent the bulk of SFTs. Considering that option 
2 covers a broader range of transactions and collateral than option 1, this option will further 
prevent the EU capital markets and market participants from an increase in the prudential 
cost for all the transactions concerned.  

21 

 
 
 
Similarly  to  option  1,  this  option  will  contribute  to  avoid  an  increase  in  the  prudential 
charge for transactions with sovereign bonds collateral.  

This option would further contribute to supporting an orderly transformation of collateral 
into cash, which is in line with the prudential requirements of the LCR. 

Option 2 will also further support the development and sustainability of capital markets 
and liquidity for collateral assets in the EU, as it will not only cover Level 1 HQLA such 
as sovereign bonds, but also other collateral assets. As such, option 2 will further support 
the liquidity of a diversity of collateral assets in the EU capital markets. 

In terms of efficiency, the cost of option 2 and option 1 in terms absence of higher NSFR 
prudential  charge  for  the  concerned  transactions  and  gap  between  the  standard 
internationally agreed and the one effectively applied in the EU are comparable. 

In terms of effectiveness, option 2 will permit to provide further long-term funding to the 
real economy (EUR 300 billion 47) than option 1 (between EUR 60 billion 48 and EUR 246 
billion 49). It will also make the liquidity of the LCR ratio more efficient, with lower bid-
ask spreads. 

Moreover, compared to option 1, option 2 would help to better achieve diversification of 
banks’ liquidity buffers and risk profile, but also contribute to mitigate the sovereign-bank 
nexus. 

Comparative presentation of the effectiveness of Option 1 and Option 2. 

Prevent regulatory 
arbitrage risk in a very 
competitive market 

Option 1 

Option 2 

Summary: + 

Summary: ++ 

+ (Preserve from a 
unilateral increase of the 
prudential charge for SFTs 
collateralised by sovereign 
bonds) 

+ (Preserve from a 
unilateral increase of the 
prudential charge for SFTs 
collateralised by sovereign 
bonds) 

+ (further support the 
development and 
sustainability of capital 
markets and liquidity for 
collateral assets in the EU) 

Make the NSFR 
treatment for SFTs 
consistent with other 

Summary: + 

Summary: ++ 

+ (Support the 
transformation of collateral 
into cash, by banks) 

47 EBA data based on Common Reporting (CoRep) - European Union area perimeter 
48 ECB data based on Money Market Statistical Reporting - Banking Union area perimeter 
49  International  Capital  Market  Association  (ICMA),  „NSFR  and  Reverse  Repo“,  May  2024 
(https://www.icmagroup.org/assets/ICMA-ERCC_BN_NSFR-and-reverse-repo_May-2024_Final.pdf) 

22 

 
 
 
 
 
 
 
 
 
prudential requirements 
for banks 

+ (Support the 
transformation of collateral 
into cash, by banks) 

+ (Support diversification 
of banks’ liquidity risk 
profile) 

Avoid increasing the bid-
ask spreads for EU 
sovereign bonds 

Make banks operate on liquid 
markets with a diversity of 
collateral assets 

Summary: + 

Summary: + 

+ (Preserve from an 
increase of the prudential 
charge for SFTs 
collateralised by sovereign 
bonds that are low-margin 
high-volume transactions) 

+ (Preserve from an 
increase of the prudential 
charge for SFTs 
collateralised by sovereign 
bonds that are low-margin 
high-volume transactions) 

Summary: - 

Summary: + 

- (Targets transactions on 
sovereign bonds) 

+ (Support transactions 
secured by a diversity of 
collateral assets and 
unsecured transactions) 

Legend:      ++ = Positive     + = Slightly positive      effect           0 = no effect            - = 

Slightly negative        

6. PREFERRED POLICY OPTION 

In terms of effectiveness, the preferred policy option (option 2) would ensure a consistent 
RSF funding charge to SFTs with a residual maturity of less than six months in the EU and 
in other major jurisdictions, supporting the contribution of banks to a smooth functioning 
of  the  EU  SFTs  and  sovereign  bond  markets.  It  would  support  the  international 
attractiveness  of  EU  capital  markets,  which  is  consistent  with  other  Commission 
initiatives. 

This  option  will  also  support  an  orderly  transformation  of  securities  into  cash  for  the 
purpose of the LCR prudential ratio and a diversification in banks’ liquidity buffer and 
securities inventories. 

Moreover,  the  preferred  policy  option  will  reduce  to  a  greater  extent  than  option  1  the 
additional long-term funding needs for banks, estimated between EUR 60 billion  50 and 
EUR  300  billion  51  (see  section  “4.1.1.  Volume  impacted”  for  further  details),  with  a 
subsequent impact on the bid-ask spread for market transactions that may adversely affect 
all  market  participants  (see  section  “4.1.2.  Additional  cost”  for  further  details).  The 
calibration of the NSFR and the LCR prudential ratios, making banks resilient to liquidity 
risk, will remain almost unchanged. 

50 ECB data based on Money Market Statistical Reporting on the perimeter of the Banking Union area 
51 EBA data based on Common Reporting (CoRep) - European Union area perimeter 

23 

 
 
 
 
 
 
 
 
Option 2 will also avoid a potential increase in Member States’ funding charge for issuing 
sovereign  debt.  This  will  mitigate  the  risk  of  a  potential  reduction  in  the  liquidity  of 
sovereign debt markets in a context of tightening monetary policy. 

In terms of effectiveness, option 2 will permit to provide further long-term funding to the 
real economy.  

In terms of consistency, it will further support the liquidity of the LCR buffer, with lower 
bid-ask spreads, on a larger perimeter of transactions.  

The preferred policy option will give legal certainty to market players on the prudential 
treatment for the transactions concerned, which will continue to be reported and disclosed 
by banks. Meanwhile, the relevant authorities will retain their supervisory power to address 
any specific prudential concern. 

The preferred option will have no impact on capital requirements for banks, compared to 
the current treatment. 

Option 2 presents benefit for the transmission of monetary policy to the real economy, the 
smooth functioning of EU capital markets and the diversification in banks’ liquidity risk 
profile. 

7. HOW WILL THE IMPACT BE MONITORED AND EVALUATED? 

Beyond the regular capital market monitoring, supervisory reviews, stress testing exercises 
and data collection carried out by central banks and supervisory authorities, including at 
EU  level,  the  proposal  sets  out  that  the  EBA  will  also  monitor  the  effects  of  the 
amendments on banks’ NSFR and the liquidity of the underlying collateral markets every 
five years. This would allow detecting any financial stability concern or unexpected cost 
of these measures and react as needed. 

The  development  of  the  periodic  monitoring  report  should  not  introduce  an  additional 
reporting burden on EU banks as it could rely on available market intelligence and existing 
supervisory reporting requirements (e.g. Common Reporting (CoRep) templates C80.00, 
C81.00 and C84.00).  

If the transitional NSFR requirements are maintained beyond 28 June 2025, no amendment 
to the Common Reporting (CoRep) templates appears necessary. 

24