EBA · 2020_5272 Final Q&A

Assets requiring stable funding

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
428, para. 1
Topic
Liquidity risk
Submitted by
Individual
Submitted
2020-05-21
Answered
2022-09-30
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Where a national competent authority has instructed an institution to hold a pillar 2 liquidity add-on, should the pillar add-on amount be treated as an encumbered asset for the purpose of NSFR reporting?

Background

Cash assets at central bank generally has a Required Stable Funding (RSF) factor of 0%, however if there is a requirement to hold an element of that asset for pillar 2 purposes should it be treated differently. The pillar 2 add-on mentioned is a liquidity add-on that the competent authority may add for liquidity risks not captured by the LCR. For example, if the competent authority asks for €100m to be held at all times for additional liquidity risks not captured by LCR (i.e. intraday liquidity risk, etc.) It is unclear whether that amount in cash should be represented as encumbered for NSFR purposes.

Answer

In accordance with Article 411(5) of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 (CRR), for the purpose of the calculation and reporting of the net stable funding ratio (NSFR), assets are generally unencumbered where they are not subject to any legal, contractual, regulatory or other restriction preventing the reporting institution from liquidating, selling, transferring, assigning or, generally, disposing such assets via outright sale or repurchase agreement.   A requirement to hold liquid assets under Pillar 2 does not constitute a breach of the requirement for liquid assets of being unencumbered according to Article 7(2) of Delegated Regulation (EU) 2015/61 (DR LCR). Hence, any assets that are held due to a Pillar 2 requirement imposed by its competent authority, but of which the institution can dispose in accordance with Article 7(2) DR LCR are subject to the RSF factors for unencumbered assets as referred to in Article 411(5) CRR in the NSFR.

Original source: European Banking Authority, Q&A ID 2020_5272

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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