EBA Publishes Report on Monitoring Implementation of LCR in EU
EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU. The report contains specific guidance for credit institutions and supervisors on different topics. The report provides guidance on operational deposits and retail deposits excluded from outflows as well as on notifications on additional liquidity outflows. The report also identifies areas that may need further attention from supervisors in their ongoing supervision of liquidity risks.
LCR has been applicable in EU since October 01, 2015 and its full implementation at a minimum of 100% became effective in January 2018. This put an end to any national provisions in the area of liquidity requirements laid down in the capital requirements regulation (CRR). In the report, EBA has highlighted areas in which further guidance is deemed useful for banks and supervisors to foster a common understanding and harmonization of the application of the liquidity standard, while reducing some issues on the level playing field. To that end, the report:
- Outlines the observations of EBA on some aspects of LCR implementation
- Outlines the views of EBA on the assessment of some observed practices
- Identifies best practices and/or areas for which further guidance for banks and supervisors might be necessary, while providing some guidance for certain areas monitored to date
- Underlines areas for which further monitoring is ongoing
At present, EBA is working on the implementation related to outflows with interdependent inflows (Article 26 of the LCR Delegated Regulation), the LCR calculated by significant currency, and HQLA diversification. EBA intends to use this monitoring exercise as a tool to assess whether changes are needed to the LCR COREP reports. For instance, EBA has built on this first monitoring exercise to propose some changes to the implementing technical standards on LCR—that is, the removal of some memo items that are deemed to have filled their role and are no longer providing useful information. These changes were consulted on in September/October 2018.
Furthermore, based on the reporting data and additional qualitative information collected, it was observed that some transactions reported as other operational deposits should have been reported under operational deposits for clearing, custody, or cash management or other comparable services. Other transactions should not have been a priori reported as operational deposits at all. Thus, it was concluded that the LCR COREP reporting templates do not currently identify the excess operational deposit amount as a separate item. It is proposed that dedicated rows be introduced in the upcoming updated LCR supervisory reporting templates for proper monitoring to take place. While some guidance has been already proposed for certain areas monitored in this report, EBA will further assess how the guidance provided in the report will be used by banks and supervisors and consider taking further steps, if needed (including some full-fledged products such as guidelines, and recommendations). EBA intends to regularly monitor the implementation of LCR for EU banks and update this report on an ongoing basis to set out its observations and provide further guidance, where necessary.
Related Links
Keywords: Europe, EU, Banking, Liquidity Risk, LCR, Liquidity Monitoring, CRR, Basel III, Reporting, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
ECB Conducts Risk Assessment for Less Significant Institutions in EURelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
