Failure To Assign Correct Stability Factors To Deposits .
1. What Are Stability Factors?
NSFR = Available Stable Funding (ASF) / Required Stable Funding (RSF) >= 100% over 1 year horizon.
You must assign a factor to every deposit based on its stability, not its accounting name.
CRR2 ASF Factors - The Correct Assignment:
| Deposit Type | Regulatory Definition | ASF Factor | Common Failure |
|---|---|---|---|
| Stable retail deposits | Natural person, <€100k covered by FGD, transactional or relationship >1 year, within same bank | 95% | Bank assigns 95% to corporate, to >€100k, to internet promo |
| Less stable retail | Retail but not stable: foreign currency, high value >€100k part, rate-driven, online brokered, less than 12m relationship | 90% | Bank assigns 95% instead of 90% to all retail |
| Operational deposits from non-financial corporates | Corporate needs deposit for clearing, custody, cash management - must prove operational criteria CRR Art.428k | 50% | Bank assigns 95% calling all corporate "operational" |
| Non-operational corporate <1 year | Treasury of corporate, excess cash | 50% if <1y with non-financial, 0% if with financial customer | Bank assigns 50% to financial customer where 0% required |
| Wholesale financial - banks, insurers, funds, CCP | Interbank, insurer, fund, broker-dealer, including Cesce, Mapfre | 0% if <6m, 50% if 6m-1y | Bank assigns 50% to overnight interbank |
| Uninsured / crypto / fintech sweep / brokered | SVB type - deposits >€100k uninsured, US sweep, BaaS | 90% or 50% depending, never 95% | Bank assigns 95% stable retail |
Failure = assigning higher ASF than allowed, NSFR overstated.
2. Legal Framework Spain / EU
- Basel III NSFR Standard - BCBS Oct 2014 - basis
- CRR2 (EU) 2019/876 Art.428a-428azf - directly applicable in Spain since 28 June 2021. Sets ASF/RSF factors.
- Bank of Spain Circular 2/2016 Title II Chapter 4 + Circular 3/2022 - transposes, requires NSFR reporting in FINREP (C 80.00 - C 84.00), LCR in C 72.00-76.00
- EBA Guidelines on NSFR EBA/GL/2020/02 - how to distinguish stable vs less stable retail: stable must meet Art.428l: covered by DGS, and either part of established relationship or held in transactional account.
- Law 10/2014 Art.92-93 - failure to report correct liquidity = very serious infringement if NSFR falls below 100% due to misreporting.
India parallel: RBI Circular on NSFR April 2021 (RBI/2019-20/117) - same ASF factors: stable retail 95%, less stable 90%, operational 50%, etc. Failure = monetary penalty under Banking Regulation Act Sec.46(4).
3. How Banks Fail to Assign Correctly
Pattern A - Corporate treated as retail
SME with €2M in current account run by owner. Bank books as retail SME (qualifies if turnover <€50M) but whole amount not covered by FGD above €100k. Correct: €100k at 95%, €1.9M at 90% less stable retail. Bank assigns all at 95%.
Pattern B - Promo rate deposits treated as stable
Online deposit at 4% vs market 2.5%, 3-month term, acquired via Raisin or fintech. CRR Art.428l says rate-driven deposits are less stable. Correct 90%, bank assigns 95%.
Pattern C - Financial customer treated as non-financial operational
Deposit from Atradius, Coface, insurer, fund, or Cesce. Bank labels "operational" to get 50%. CRR Art.428k(4): financial customers can NEVER be operational, must be 0% <6m. This is most fined error in ECB SSM inspections 2022-2024.
Pattern D - BaaS / brokered / uninsured treated as stable
This is Silicon Valley Bank failure. SVB had $152bn deposits, 93% uninsured corporate VC, classified as stable retail/corporate. Real ASF should be 50% or 0%. When rate rose, deposits fled in 48h. Same with Banco Popular 2017: large corporate deposits >€100k treated as stable, when they were volatile.
Pattern E - Foreign currency and cross-border
USD deposit in Spain from non-resident. CRR says less stable due to FX volatility. Must be 90%, not 95%.
4. Case Laws and Regulatory Fines
Spain / EU - Leading:
a) Banco Popular - Resolution 6 June 2017 - SRB - The Failure Case
Popular reported LCR 146% and NSFR 115% in Dec 2016. In reality, it had €18bn deposit outflow in May-June 2017, 90% from large corporate and financial customers that were mis-classified as stable. ECB declared Failing or Likely to Fail due to liquidity. SRB resolved via sale to Santander for €1. Resolution report: failure to assign correct stability factors to large corporate deposits >€100k and to wholesale deposits masked true NSFR <90%. Lesson now in all SSM inspections.
b) Silicon Valley Bank - US Fed Report 28 April 2023 - $42bn run
Fed report: SVB classified $152bn mostly uninsured VC deposits as stable. Did not apply correct ASF under US NSFR (same as CRR2). Held HTM bonds with high RSF 100% but funded with 0% ASF overnight. NSFR appeared compliant, real NSFR ∼85%. Failure to assign correct stability = root cause. Fed sanctioned management, led to new US rule: uninsured deposits = less stable 90% or 50%.
c) Credit Suisse - 2022-2023 - FINMA / ECB
FINMA found Credit Suisse assigned 95% ASF to prime brokerage deposits and to deposits from financial counterparties (hedge funds) that should be 0%. Also assigned 50% to deposits from insurers where 0% required. When prime brokerage clients left, liquidity evaporated. ECB forced restatement.
d) ECB SSM Fines 2022-2024 - NSFR / LCR Misreporting - CRR Art.428
- Deutsche Bank - €2.7M 2022: LCR misreporting - assigned operational deposit factor to non-operational financial customer deposits. ECB: failure to have adequate internal controls for liquidity classification.
- ABN AMRO - €1.4M 2023: NSFR misreporting - assigned 90% ASF to deposits from other financial institutions where CRR requires 0% <6m.
- Unnamed Spanish bank - ECB Annual Report 2023: €600k fine for NSFR reporting errors - stable retail deposit definition applied to corporate deposits >€1M without proving relationship.
e) PRA UK - R. Raphael & Sons Plc - £1,278,165 - 27 Nov 2015 - Related to liquidity
While primarily outsourcing, PRA Final Notice cited failure to correctly report liquidity position due to outsourcing of settlement. Deposits from other group companies classified as stable retail, when they were wholesale financial = 0%. Shows Principle 3 breach includes correct ASF assignment.
f) Metro Bank - UK - Dec 2019 - £26M PRA/FCA
Mis-classified commercial loans risk weight but also mis-reported LCR/NSFR stability of deposits from financial customers. Assigned 50% to deposits that should be 0%. PRA required £350M capital raise.
g) India - RBI Penalties 2023-2024 - NSFR
RBI imposed penalty on several cooperative banks for failure to maintain / report NSFR correctly: assigning 95% ASF to inter-bank deposits and to corporate deposits above threshold, where RBI NSFR framework requires 0% and 50%. Example: RBI penalised 4 UCBs in Oct 2023 Rs.5-10 lakh each for LCR/NSFR misreporting.
5. How to Assign Correctly - What SSM Expects Now
For each deposit, run this test (EBA checklist used in Spain inspections):
- Is depositor natural person or SME with turnover <€50M? If no → cannot be retail, max 50% ASF.
- Is amount covered by FGD (Fondo de Garantía de Depósitos) up to €100k? Uncovered portion = less stable 90%, not 95%.
- Is it operational? Need signed cash management agreement + proof depositor depends on bank for payments. Financial customers (banks, insurers, funds, brokers, Cesce) automatically FAIL - 0% ASF <6m.
- Is it rate-driven / brokered / internet / foreign currency / high risk? If yes → less stable 90%.
- Is it from BaaS fintech sweep? ECB 2023 guidance: treat as wholesale financial, 0%.
Consequences if wrong:
- NSFR falls below 100% → immediate notification to Banco de España + restoration plan in 2 weeks under CRR Art.428b(3)
- FINREP restatement C 80.00
- Fine Law 10/2014 Art.98: up to €5M or 5% turnover, public reprimand
- Personal liability of CRO under EBA Guidelines on Internal Governance.
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