The European Commission adopted the Delegated Regulation amending liquidity coverage rules for covered bond issuers. The adopted regulation amends Regulation 2015/61 (the LCR Delegated Regulation) to supplement the Capital Requirements Regulation, or CRR, on the liquidity coverage requirements for credit institutions. The amended regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from July 08, 2022.
The LCR Delegated Regulation is being amended to better allow credit institutions issuing covered bonds to comply with the general liquidity coverage requirement for a 30-calendar-day stress period (in Article 4(1) of Regulation the LCR Delegated Regulation) and with the cover pool liquidity buffer requirement of holding liquid assets to cover net liquidity outflows over the next 180 days (in Article 16 of the Covered Bond Directive). To clarify certain existing rules and to align the text of the LCR Delegated Regulation with the definitions laid down in CRR and the Covered Bond Directive, certain additional changes have proven necessary. The general liquidity coverage requirement and the cover pool liquidity buffer requirement result in an obligation for credit institutions issuing covered bonds to hold a certain amount of liquid assets for the same period of 30 calendar days. However, credit institutions should not have an obligation to cover the same outflows with different liquid assets for the same period. To address this overlap, a new amendment to the encumbrance criterion under the general liquidity coverage requirement has been introduced to treat liquid assets held as part of the cover pool liquidity buffer as unencumbered up to the amount of net liquidity outflows stemming from the associated covered bond program. Moreover, it is necessary to lay down monetization rules for the assessment of liquid assets held in a cover pool liquidity buffer.
Other amendments to the LCR Delegated Regulation include the following:
- Replace references to "secured lending transactions" in Article 28(3) and in Article 32(3)(b) and (4) of the LCR Delegated Regulation with references to "securities financing transactions." This would better align the text with the LCR standard agreed at international level by the Basel Committee on Banking Supervision.
- Insert a reference to official export credit agencies in point (g) of Article 7(4) of the LCR Delegated Regulation to ensure equal treatment of securities issued by export credit agencies guaranteed by the central government of a member state, irrespective of the organizational structure of the respective export credit agency.
- Several additional changes to the LCR Delegated Regulation to align it with Article 129 of CRR, as amended by Regulation 2019/2160 and the Covered Bond Directive.
Keywords: Europe, EU, Banking, CRR, Basel, Liquidity Risk, LCR, Covered Bond, Covered Bond Directive, EC, Subheadline
Previous ArticleECB Updates List of Supervised Entities in EU in August 2021
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.