EBA · 2023_6858 Rejected question

Treatment of derivative positions in the event of counterparty default

Name: Treatment of derivative positions in the event of counterparty default: EBA Q&A — EU Financial Regulatory Q&A
Creator: European Banking Authority
License: https://creativecommons.org/licenses/by/4.0/

Regulation: Regulation (EU) No 575/2013 (CRR)
Article: 412, para. 1
Topic: Liquidity risk
Submitted by: Credit institution
Submitted: 2023-08-04

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Question

Should the outflows from derivative transactions be taken into account in the calculation of the LCR ratio, when the counterparty is in default?

Background

According to Art. 32 (1) Delegated Act (EU) 61/2015, liquidity inflows "shall comprise only contractual inflows from exposures that are not past due and for which the credit institution has no reason to expect non-performance within 30 calendar days." In this context, how should derivative transactions be treated, where payment flows in both directions have been agreed between the contracting parties? If the counterparty is in delay or defaults, should only the inflows be excluded from the calculation of the LCR ratio or also the outflows resulting from the derivative?

No answer published yet.

Original source: European Banking Authority, Q&A ID 2023_6858

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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