The European Commission has proposed maintaining the current rules on liquidity requirements for certain financial transactions under the EU banking prudential framework. This move aims to ensure a level playing field between European and international banks, supporting the liquidity of EU financial markets. If adopted, it will contribute to the competitiveness of the EU financial system, ultimately benefiting citizens and businesses alike.
Under the Capital Requirements Regulation (CRR), some short‑term securities financing transactions (SFTs) currently benefit from lower liquidity requirements than those set out in the Basel III international standards. This transitional treatment is set to expire on 28 June 2025, after which higher requirements of the Basel standards would apply. In simpler terms, the proposal focuses on short-term transactions where assets are temporarily exchanged for cash. These transactions are essential for banks to provide liquidity to markets, particularly for government bonds.
The proposed changes to the so‑called net stable funding ratio (NSFR) will
- support the liquidity of EU markets, including government and NextGeneration bonds
- avoid increasing issuance costs for EU Member States and the European Union when issuing bonds
- and ensure that EU banks can compete on an equal footing with banks from other countries. This is in line with goals set out in the savings and investments union Communication
The Commission’s proposal will now be reviewed by the European Parliament and the Council. Given the upcoming expiry of the current transitional treatment, the Commission calls on the co‑legislators to process this proposal swiftly.
More information on the proposal
Questions and answers
What is the net stable funding ratio?
The net stable funding ratio (NSFR) is a prudential requirement that applies to all EU banks since 28 June 2021. It aims to ensure that banks have stable funding sources to support their activities over a one‑year horizon, preventing an excessive maturity mismatch between assets and liabilities and an excessive reliance on short-term funding.
In response to the 2008 global financial crisis, the European Union (EU) substantially reformed the prudential framework applicable to banks 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).
The Regulation (EU) No 575/2013 of the European Parliament and of the Council (‘Capital Requirements Regulation’ or ‘CRR’), as amended by Regulation (EU) 2019/876, implements the Basel standards in the EU law and specifies the NSFR requirements applicable to banks.
What is a securities financing transaction?
Securities financing transactions (SFTs) are secured capital market transactions in which assets (collateral) are temporarily exchanged for cash. SFTs are generally short-term and mostly interbank transactions between financial institutions.
Since the 2008 global financial crisis and the collapse of the interbank unsecured lending market, SFTs are crucial tools enabling banks acting as broker-dealers to conduct market-making activities and ensuring the liquidity of collateral, in particular sovereign debt, which is used as collateral for 85‑90% of the total outstanding SFT volume. They are key capital market instruments to support the overall market liquidity and monetary policy transmission.
What is an unsecured lending transaction?
Unsecured lending transactions are loans that are not secured by any collateral. They are granted based on the borrower’s creditworthiness and promise to repay.
What is the Commission proposing?
The Commission has proposed a targeted legislative amendment to the CRR to maintain the transitional treatment due to expire on 28 June 2025 for short‑term SFTs and unsecured lending transactions, with financial counterparties. In the absence of EU action, the required stable funding requirements for SFTs collateralised by very high‑quality assets (such as sovereign debt), by other assets, and for unsecured transactions, with a maturity of less than six months and with financial counterparties, would increase from 0%, 5% and 10% to 10%, 15% and 15%, respectively.
As the current transitional prudential treatment of short‑term SFTs is in Regulation (EU) No 575/2013, a legislative proposal is needed to maintain it.
Why is the Commission coming out with this proposal?
Regulation (EU) 2019/876 specifies transitional prudential requirements for SFTs and unsecured transactions with a maturity of less than six months, which involve financial counterparties. The current treatment is set to expire after 28 June 2025 and would then be replaced by a more stringent treatment, as set out in the Basel standards.
The Commission proposes to maintain the current treatment for several reasons
- First, the Commission’s monitoring show that other major jurisdictions, notably the US, the UK, Switzerland, Canada and Japan are permanently deviating from the Basel standard as regards the prudential calibration for SFTs with a maturity of less than 6 months. The current transitional treatment in CRR is aligned with that of key jurisdictions. A tighter NSFR treatment would oblige EU banks to raise additional funds on capital markets and to pass on those additional costs to their clients.
Maintaining the transitional treatment will ensure a level‑playing field for EU banks in an area which is prone to international competition. This is in line with the savings and investments union Communication, where the Commission committed to remain vigilant to avoid penalising EU banks that are internationally active on global markets, as well as preserve their competitiveness in European markets vis‑à‑vis non‑EU banks
- Second, maintaining the current NSFR treatment would also support a deep SFT market and the liquidity of collateral instruments, including sovereign bonds. The end of the transitional treatment could discourage EU banks from being active on those markets and affect the liquidity of those instruments, leading to an increase in funding costs for Member States. Maintaining the current treatment will have a positive effect, by not increasing issuance costs of sovereign debt
- Third, today’s targeted proposal will also support the market liquidity and the diversity of collateral assets eligible for banks’ liquidity buffers, as it will maintain the transitional treatment for SFTs collateralised by instruments other than sovereign bonds
- Finally, the treatment that applies since 28 June 2021 has proven to be prudentially sound and has not raised financial stability concerns, including during recent stress periods (Russia‑Ukraine war, 2023 banking turmoil in the US and Switzerland). EU banks have built up significant liquidity buffers, beyond minimum requirements, and are subject to an ongoing supervision by competent authorities, as regards their funding practices and liquidity risk profile
What previous work has been done before coming out with the proposal?
The European Banking Authority (EBA) has analysed the impact of the end of the transitional treatment, for both SFTs and unsecured funding transactions of less than six months and concluded this would only have a limited impact on banks’ net stable funding ratio levels.
The Commission’s monitoring of Basel implementation across jurisdictions shows that other major jurisdictions are permanently deviating from the Basel NSFR standard as regards the calibration of stable funding requirements for SFTs with a maturity of less than six months and collateralised by very high‑quality collateral.
The Commission also participated and contributed to the dedicated discussions of the subcommittee of the Economic and Financial Committee on EU Sovereign Debt Markets, which represents the views of Member States’ debt management offices. These discussions highlighted the critical importance of SFTs for the transmission of monetary policy and for sovereign debt markets.
The Commission has conducted a call for evidence between 10 February and 10 March 2025 to which 27 stakeholders from 11 Members States and from one third country answered. The European Central Bank (ECB) also published a staff response to the call for evidence on its website. Respondents broadly support the proposed way forward to extend the current prudential treatment also after 28 June 2025. Respondents underlined that the absence of a proposal would create an unequal prudential treatment for SFT‑related business activities in the EU and in third country jurisdictions, with detrimental impact on the EU markets. A majority of stakeholders asked to make the treatment permanent beyond 28 June 2025, while a few respondents suggest a time‑limited extension.
Will this proposal require preparations from the industry?
No specific preparation is needed as the proposal maintains the current situation.
What are the roles of EBA and ECB in the process?
As part of the proposal, the EBA is mandated to report, by 31 January 2029 and every five years thereafter, on the implications of maintaining the current treatment. This would inform the Commission, should the prudential treatment of the securities financing transactions require modifications.
This reporting obligation will come in addition to the continuous monitoring of capital market developments by central banks and to the ongoing supervision by the ECB single supervisory mechanism and national competent authorities.
Why has the EC prepared a staff working document instead of an impact assessment?
Due to the urgency to act, given the forthcoming end of the transitional phase, the Commission prepared a staff working document analysing the costs and benefits of maintaining the current treatment also after 28 June 2025, in comparison to a scenario in which it would lapse, as currently envisaged.
The staff working document took into account the findings of EBA’s report on ‘specific aspects of the net stable funding ratio framework’ and the views of EU stakeholders, expressed ahead of and in response to the 4‑week call for evidence.
The Commission has also exchanged on this issue with staff in the EBA, the European Securities and Markets Authority (ESMA), the single supervisory mechanism (SSM) and the European Central Bank.
The staff working document assesses the advantages and challenges to maintain the transitional treatment and concludes that prolonging the transitional treatment beyond 28 June 2025 would bring important net benefits for the Banking Union and for the savings and investments union.
Why is the Commission proposing 29 June 2025 as the date for the application of the proposal?
The Commission proposes an application of the treatment from 29 June 2025 onwards to ensure continuity in the treatment and avoid changes in the prudential charges that apply to the securities financing transactions under consideration.
A retroactive application is possible. Temporarily discontinuing the current treatment would create legal uncertainty for market participants and undue financial burden for the EU banking sector in general.
When will the proposal come into force?
The proposal will now be submitted to the European Parliament and the Council. The changes will enter into force once the co-legislators have reached an agreement on the proposal and after publication in the EU Official Journal.
Considering that the current treatment will end on 28 June 2025 and given the need to provide sufficient time and visibility to the industry, the Commission calls on the co‑legislators to process the proposals without undue delay.
Related links
Prudential requirements
