Question ID
2014_784
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Liquidity risk
Article
425
Subparagraph
8
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
NA
Type of submitter
Credit institution
Subject matter
Inflows
Question

Article 425(8) of Regulation (EU) 575/2013 states that "institutions shall not report inflows from any new obligations entered into". Is it the case that all forward starting transactions should be excluded from the LCR, including those which produce an outflow? For instance, a bank may enter into a forward starting reverse repo trade which begins in two days time, with a maturity one month from the settlement date. In the buffer, cash will be reported, however in two days time that cash will have been lent out and a lower quality asset may have been received; the trade is in affect a downgrade which has not yet been accounted for.

Background on the question

Need for clarity

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Final answer

The term 'new obligations' in Article 425(8) of Regulation (EU) No 575/2013 (CRR) refers to contractual commitments which have not been contractually established at the LCR's reporting date, but will or may be entered into within the 30 day horizon.

Consequently, only those forward transactions are relevant for the LCR which:

  •  are contractually fixed, but not yet settled at reporting date;  and
  •  imply an in- and/or outflow of cash and/or liquid assets in the next 30 days.

Forward transactions entered into subsequent to reporting date are not considered.

Article 425(8) of the CRR refers to "Inflows" and prescribes that "institutions shall not report inflows from any new obligations entered into".

Article 416 of the CRR provides for conditions to be met in relation to the reporting of liquid assets and Article 417 of the CRR provides for operational requirements for holding of liquid assets.  Assuming the forward starting transactions refer to unsettled transactions to be settled and not maturing within the 30 day time horizon, cash may, subject to meeting the requirements of Article 416 and 417 of the CRR, be reported as a liquid asset for the purposes of liquidity coverage requirements under Article 412.

For the purposes of liquidity outflows in Article 420(1) of the CRR, pending the specification of a liquidity requirement in accordance with Article 460, liquidity outflows to be reported shall include, inter alia, the current amounts outstanding of other liabilities that come due, can be called for payout by the issuing institutions or by the provider of the funding or entail an explicit expectation of the provider of the funding that the institution would repay the liability during the next 30 day as set out in Article 422 of the CRR. 

Specifically, Article 422(2) of the CRR provides that institutions shall multiply liabilities resulting from secured lending and capital market-driven transactions as defined by Article 192(3) by prescribed percentages related to the underlying liquidity quality of the asset collateralising the transaction and the nature of the counterparty. 

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

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