It stands for required stable funding; the amount of funding an entity (e.g., a bank) requires taking into consideration the liquidity profile and residual maturities of its assets and off-balance sheet (OBS) exposures over the course of upcoming year. This source of funding is required for certain amount of lending to businesses operating in the real economy, and as a support to banks rolling over their maturing loans (long-dated assets) to accommodate their clients (for periods exceeding one year).

Stable funding is meant to finance certain types of assets on a bank’s balance sheet and OBS exposures. This may include a portion of unencumbered high-quality assets and potential calls on liquidity arising from OBS commitments and contingent funding obligations.

Investors may have an option to extend maturity of certain assets (instruments issued by the bank). Instruments exercisable at the bank’s discretion may not be exercised in specific cases, exposing the bank to funding pressures and reputational risk. In addition to that, stable funding may include financial instruments, foreign currencies and commodities for which a purchase order has been executed, while instruments for which a sales order has been executed are excluded when meeting specific conditions.

Securities lent/ received in secured funding transactions are included only when the bank retains beneficial ownership and the assets remain on its balance sheet.