Constant balance sheet
Regulatory Definition
A balance sheet including off-balance-sheet items in which the total size and composition are maintained by replacing maturing or repricing cash flows with new cash flows that have identical features with regard to the amount, repricing period and spread components.
EBA GL/2022/14
What This Actually Means
When something matures or reprices, you replace it with an identical instrument. Your 2-year fixed mortgage that rolls off gets replaced by another 2-year fixed mortgage at the same spread. The balance sheet size and composition stay frozen — like-for-like replacement in perpetuity.
Where It Matters
A common assumption for internal NII projections because it isolates rate risk from business strategy risk. But it's a fiction — you'd never actually replace every product identically. It also creates odd artefacts: replacing a 5-year fixed mortgage written 3 years ago with a new 5-year means your average duration keeps resetting, which may not reflect reality.