Featured Product

    EBA Report Examines Implementation of Liquidity Coverage Ratio in EU

    March 15, 2021

    EBA published the second report on monitoring of the implementation of the liquidity coverage ratio (LCR) in EU. The report presents observations and main conclusions reached in the area of the use of certain liquidity mechanisms amid pandemic. It also presents the new implementation issues observed since the last assessment report and summarizes the effects of EBA guidance provided in the first report, which was published in July 2019. EBA plans to continue to monitor LCR implementation and extend monitoring to the net stable funding ratio or NSFR.

    The report discusses:

    • Liquidity issues during a crisis period, in the COVID-19 context. The report focuses on the use of liquidity buffers, guidance on unwinding mechanism waivers, recourse to central bank support, and additional outflows from derivatives. The report provides a policy discussion on the management of liquidity buffers under stress and builds on the regulatory expectation that the liquidity buffer in the LCR is designed to be used to meet net outflows under stress. This is  to avoid contagion risk and ensure liquidity injection into the economy and financial system. The report argues that the use of liquidity buffers should not be penalized by the reaction of external or internal agents. These discussions build on the observations raised by some supervisors on the reluctance of banks to use their buffers during the COVID-19 episodes.
    • New implementation issues. The report identifies certain issues for which guidance is provided to ensure a common understanding. The observed issues are with respect to the treatment of fiduciary deposits, LCR optimization risks, concentration of outflows beyond 30 days, Article 26 LCR DR on outflows with interdependent inflows, and Deposit Guarantee Scheme conditions for a 3% outflow rate in retail deposits. Based on both policy and legal views, the report provides guidance to banks and supervisors on how the conditions required for the mentioned treatment should be read and shows how competent authorities might still grant, within the Pillar 1 requirement, the application of this inflow cap waiver in a partial manner if they wish to ensure a minimum LCR buffer is held.
    • Impact of previous guidance. EBA has noticed that its previous guidance has positively influenced the behaviors of banks, which shows the usefulness of this guidance. The report reviews the application of the guidance to identify excess operational deposits included in the first report and identifies that some competent authorities have used different ways of communication of the guidance. Some supervisors have also confirmed that they have observed that banks treat excess operational deposits in accordance with the EBA guidance. Competent authorities confirmed the EBA guidance to identify retail deposits excluded from outflows was being applied in practice.

    In this report, EBA highlights that it will continue working on monitoring the implementation of the LCR in EU and will subsequently extend it to NSFR. Some topics are already work in progress. For instance, EBA has started to work on a common understanding for a methodology to assess the required below 3% run-off evidence for the application of a 3% outflow rate in stable retail deposits (Article 24(5) of the LCR DR). EBA will work on the notifications to be received in application of Article 26(2) of the LCR DR on outflows with interdependent inflows in the context of the guidance included. EBA will also monitor the application of the guidance on unwinding waivers. Other important topics are LCR by currencies subject to separate reporting (significant currencies) and HQLA diversification in LCR, as already announced in the first report.

     

    Related Links

    Keywords: Europe, EU, Banking, LCR, COVID-19, Deposit Guarantee Scheme, Basel, NSFR, EBA

    Featured Experts
    Related Articles
    News

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News
    News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News
    News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News
    News

    APRA Penalizes Heritage Bank for Incorrect Reporting of Capital

    The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Releases Annual Report 2021-2022

    The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Updates Timeline for Implementation of Certain Basel Rules

    Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.

    November 29, 2021 WebPage Regulatory News
    News

    EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR

    EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.

    November 29, 2021 WebPage Regulatory News
    News

    FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR

    The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.

    November 29, 2021 WebPage Regulatory News
    News

    APRA Finalizes Capital Adequacy Standards for Banks

    The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.

    November 29, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.

    November 29, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7751