EBA · 2021_6163 Final Q&A

LCR treatment of open maturity reverse repos which can be terminated at any point in time

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
460, para. 1
Topic
Liquidity risk
Submitted by
Competent authority
Submitted
2021-09-03
Answered
2022-09-30
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

What is the LCR treatment of reverse repos with open maturity which can be terminated at any point in time? Will they be considered as regular secured lending transactions pursuant to Article 32(3)(b) of Delegated Regulation (EU) 2015/61? Or are they to be excluded since any inflows arising from the termination of those transactions are contingent?

Background

While existing EBA Q&As do not explicitly cover the case of reverse repos with open maturity which can be terminated at any point in time by the liquidity provider, existing EBA Q&As provide for an exclusion of liquidity inflows that are contingent upon the exercise of an option (irrespective of the concrete product at stake). This high-level approach is also reflected in paragraph 72 of the first EBA monitoring report on the implementation of the LCR in the EU .

Answer

In accordance with Article 32(1) of the Commission Delegated Regulation (EU) No 2015/61, inflows may only comprise contractual inflows from exposures which are not past due and for which the institution has no reason to expect non-performance within the 30-day period. Therefore, options that would advance inflows to the reporting institution shall be considered contingent and not contractual, hence as not to be exercised. Accordingly, reverse repos with open maturity not formally called for within the 30-day horizon and contingent on the option for the reporting institution of the reverse-repo to trigger the liquidity inflow, shall not be considered as inflows in the LCR.

Original source: European Banking Authority, Q&A ID 2021_6163

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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