Question ID
2013_655
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Supervisory reporting - Liquidity (LCR, NSFR, AMM)
Article
423
Paragraph
2
Subparagraph
n.a.
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
Annex XII, C 52.00, r 1150
Type of submitter
Competent authority
Subject matter
Additional outflow due to a material deterioration in the credit quality of the institution
Question

Article 423(2) stipulates that institutions shall notify to the competent authorities conracts containing conditions which lead, within 30 days following the material deterioration of the credit quality of the institution, to liquidity outflows or additional collateral needs. Article furthermore specifies that the competent authorites shall require an additional outflow if those contract are material but this additional outflow is required only for the additional collateral needs. The row 1150 in C 52.00 also provides only additional outflow for additional collateral needs. Some institutions may have entered into contracts containing conditions which lead to additional outflow in the form of the repayment of the debt outstanding or to a rise of interest rate within 30 days following the material deterioration of the credit quality of the institution (and not additional collateral needs). Does this mean that the additional outflow due to the material deterioration of the credit quality of the institution which is not in the form of additional collateral needs is not considered and not reported as an outflow?

Background on the question

Some contratcs may lead to other forms of liquidity outflows in the case of material deterioration of the credit quality of the institution and not just additional collateral. These outflows (i.e. repayment of the outstanding debt within 30 days following the deterioration) are also material and should be treated equally for the purpose of liquidity coverage requirement.

Submission date
Final publishing date
Final answer

 According to Article 423(2) of Regulation (EU) No. 575/2013 (CRR), institutions shall notify to the competent authorities all contracts entered into the contractual conditions of which lead, within 30 days following a material deterioration of the credit quality of the institution, to liquidity outflows or additional collateral needs. Hence, institutions have to notify all additional liquidity outflows meeting the above criterion, not only those giving rise to additional collateral needs. 

DISCLAIMER:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Internal Market and Services) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Status
Final Q&A
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.

Disclaimer

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