Implementation of net stable funding ratio rules in 2018 is likely to make securitisation a less attractive form of funding for authorised-deposit taking institutions covered by the NSFR rules.Secured funding, such as residential mortgage-backed securities, could have their "required stable funding" factor increased to 100 per cent, compared with a factor of 65 per cent for standard mortgages.The Australian Prudential Regulation Authority has issued a discussion paper outlining its plans for implementing NSFR, which is one part of the Basel Committee on Banking Supervision's liquidity framework.The other is the liquidity coverage ratio, which requires banks to maintain an adequate level of high-quality liquid assets that can be converted into cash to meet liquidity needs for 30 days. The LCR rules took effect in January last year and the NSFR rule will take effect in January 2018. As with LCR, NSFR will apply to only a small number of large authorised deposit-taking institutions (LCR applies to 15 ADIs).APRA said ADIs had increased the amount of funding from more stable funding sources since the financial crisis, reflecting the need for funding resilience."The NSFR will help to reinforce and maintain those improvements," APRA said.APRA's implementation of NSFR will generally follow the international standard but it will tailor the rules for Australian circumstances. NSFR seeks to ensure that long-term assets are financed with at least a minimum of stable funding. Stable funding is the portion of an ADI's capital and liabilities expected to be a reliable source of funds over a one-year time horizon.The NSFR is generally calibrated such that longer-term funding is assumed to be more stable than short-term funding. APRA said the standard would apply a "required stable funding" ratio of 100 per cent to assets that are encumbered for one year or more. This reflects the assets being unavailable for use as collateral to secure funding or to be sold.This will affect secured funding, such as residential mortgage-backed securities, which could have their RSF factor increased to 100 per cent, compared with a factor of 65 per cent for standard mortgages.APRA said: "Concerns have been raised in previous rounds of consultation that this treatment of asset encumbrance under the NSFR standard would unduly penalise an ADI for undertaking secured funding transactions and make this type of funding less attractive."However, APRA believes the treatment is appropriate. "When an asset becomes encumbered its liquidity characteristics have unquestionably changed, and it is appropriate that this is reflected in an adjustment to the relevant RSF factor," APRA said.Elsewhere, APRA proposes to treat debt securities that are eligible for the Reserve Bank's Committed Liquidity Facility as being equivalent to high-quality liquid assets in determining NSFR. ADIs that purchase such securities must finance their purchases with stable funding in order to improve its NSFR.However, APRA does not propose to recognise self-securitised assets as being equivalent to high-quality liquid assets for NSFR purposes, even though such assets may be eligible as collateral from the Committed Liquidity Facility.The consultation paper also covers the treatment of interdependent assets and liabilities, off-balance