C 66.01 Contractual Maturity Ladder: Eligibility of retained covered bonds issued and received by other members of the same group as counterbalancing capacity

Can a credit institution include in its initial stock of counterbalancing capacity in the C 66.01 contractual maturity ladder central bank-eligible covered bonds that constitute retained own issuances from another member of the same group?

The question is if an individual credit institution, which belongs to a broader banking group, can include in its initial stock of counterbalancing capacity (CBC) covered bonds that constitute retained own issuances from another member of the same group and that the reporting credit institution received as collateral via an intra-group repo. On the one hand, a literal reading of the current instructions seem to exclude the eligibility of the relevant covered bonds as CBC. This is because of the following: First, covered bonds issued by members of the same group do not qualify as high-quality liquid assets (HQLA) for the purpose of the LCR as per Article 7(3) LCR DR. Hence, these assets can also not be included under ID 3.3 (Level 1 tradable assets), ID 3.4 (Level 2A tradable assets) and ID 3.5 (Level 2B tradable assets) in the initial stock of CBC since the instructions for these reporting categories clearly reference to the definitions used in the LCR DR. Second, covered bonds issued by members of the same group also do not seem to qualify for the initial stock of CBC under ID 3.6 (other tradable assets) and ID 3.7 (non-tradable assets eligible for central bank) since, for both categories, the instructions clearly state that “securities and securities flows from other tradable assets in the form of intragroup assets shall not be reported in the counterbalancing capacity”. Third, the relevant assets also do not seem to be eligible for the initial stock of CBC under ID 3.7a (own issuances eligible for central banks) since this row exclusively refers to secured debt instruments “issued by the institution […] and retained on the institution’s balance sheet”. A literal reading seems to suggest that the instructions refer to the reporting entity and may not be read and interpreted in a broader sense (i.e., from group perspective). On the other hand, the assets may – economically – constitute a valid source of liquidity, especially since the assets are central bank-eligible. Moreover, it does not seem consistent including in the stock of CBC own retained issuances, while – at the same time – excluding the same type of assets issued (and initially retained) by other members of the same banking group. Moreover, at the consolidated perimeter of the banking group, those assets would indeed qualify for being reported under ID 3.7a.