DNB Sets Out New Approach for Pillar 2 Liquidity Requirements for LSIs
DNB introduced a new approach for Pillar 2 liquidity requirements for less significant institutions (LSIs). This approach includes the introduction of a survival period requirement and a net stable funding ratio (NSFR) requirement. The new requirements will be applied starting from the supervisory review and evaluation process (SREP) in 2017.
DNB had reviewed its methodology for determining Pillar 2 liquidity requirements, which led to the development of this new approach. DNB decided to replace the former grace period with a new six-month survival period requirement. The survival period requirement entails that a credit institution needs to ensure that it can continue operating for at least six months and meet all its payments due under the assumed liquidity stress scenarios. This requirement is based on the outcome of the internal stress test of the credit institution, which should capture the vulnerabilities of the specific institution. Apart from the survival period, an LSI will be required to maintain a minimum NSFR of 100%, thus ensuring the stability of the institution’s funding profile. The new requirements will become applicable via the SREP letter that credit institutions will receive as part of their next SREP. DNB expects an LSI to calculate and monitor its survival period and its NSFR at least on a monthly basis.
DNB should be notified by an LSI in case its survival period drops below 7 months. In addition, while DNB already receives information on the NSFR via regulatory reporting, DNB should also be informed when the NSFR falls or is expected to fall below 100%. For the institutions that do not meet the requirements when they come into force, institution specific arrangements will be made to become compliant. With this new approach, DNB follows the EBA guidelines on common procedures and methodologies for the SREP (EBA/GL/2014/13). These guidelines give competent authorities the possibility to set such minimum Pillar 2 requirements.
Related Link: DNB Notification
Keywords: Europe, DNB, Netherlands, Pillar 2, Survival Period, NSFR, SREP, LSI, Banking
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