EBA · 2015_1855 Final Q&A

Reporting of secured lending if an institution has no possession of the collateral

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
460, para. 3
Topic
Liquidity risk
Submitted by
Credit institution
Submitted
2015-02-25
Answered
2015-06-26
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Does a loan qualify as collateralised lending if the collateral has been pledged by the debtor, but the bank can only use the collateral in the event of a default of the customer or should loans only be seen as collateralised lending if the bank is in possession of the collateral (meaning the collateral is included in the bank’s balance sheet)? What does collateralised by collateral that qualifies as a liquid asset mean? Does it mean that the bank has reported the collateral as High Quality Liquid Assets (HQLA) in the LCR, or does it mean that if the bank will call the collateral in case of a default of the debtor the bank can than report that gained collateral as HQLA?

Background

Article 32(3)(b) of the Delegated Act for the reporting of the Liquidity Coverage Requirement states that collateralised loans should receive a 0% inflow if the collateral fulfils the requirements for HQLA. Inflows within the next 30 days from loans collateralised by other collateral (non HQLA) should receive a 100% inflow.

Answer

General and operational requirements that must be fulfilled by liquid assets to be included in the numerator of the Liquidity Coverage Ratio are specified in Articles 7 and 8 of the Commission Delegated Regulation (EU) No 2015/61 of 10 October 2014 on the Liquidity Coverage Requirement for credit institutions. If the credit institution does not have ready access to, or may not dispose of, the collateral pledged by the debtor (including if the bank can only use the collateral in the case of a default of the debtor), they do not qualify as liquid assets in accordance with Articles 7(2) and 8(2) of the Commission Delegated Regulation (EU) No 2015/61 since the credit institution does not have ready access to the collateral, and hence is not able to monetise them at any time during the 30 calendar day stress period. Monies due when collateralised by assets that do not qualify as liquid assets in accordance with Title II shall be taken into account in full according to Article 32(3)(b) of the Commission Delegated Regulation (EU) No 2015/61.

Original source: European Banking Authority, Q&A ID 2015_1855

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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