In contrast to the LCR, the NSFR is designed as a medium- to long-term measure of liquidity intended to mitigate any future liquidity runs and, subsequently avoid any possible knock-on effects of a systemic liquidity crisis; like firms’ default, for example. In fact, the NSFR addresses the issue of maturity mismatch between a bank’s assets and liabilities.
It is important to make clear that the NSFR has not been designed to play the role of an early warning indicator (EWI) of liquidity difficulties. Indeed, if one were to apply the NSFR to the period leading up to the recent crisis, the NSFR would have revealed to be an inconsistent indicator of future liquidity stress.