EBA has published two discussion papers on liquidity reporting and the calculation of the Liquidity Coverage Ratio (LCR):

  • The first proposes a methodology for ranking assets based on liquidity metrics. This analysis is necessary in the context of the LCR, which will require firms to hold a pool of high-quality liquid assets (HQLA) to meet outflows during a 30-day stress scenario. CRR requires EBA to report on definitions of HQLA and appropriate caps and haircuts when holding these assets in the liquidity pool. EBA intends to use the information available from transaction reporting databases and national equity indexes, but seeks advice on what its data sources should be for repo transactions and for other asset classes such as gold.
  • The second contains EBA’s preliminary thinking on retail deposits subject to higher outflows under a stress scenario. CRR requires it to identify and define those deposits, and assign them outflow rates. EBA bases its proposals on the experience and judgement of national authorities during the financial crisis. This shows that factors leading to higher deposit outflows include volume of the deposit, sophistication of the customer, distribution channel, yield, maturity, currency and location. Sight deposits prove the most stable during stress periods, followed by saving deposits and finally term deposits. EBA will launch a consultation at a later stage. Currently the scope of its mandate to produce technical standards or guidelines differs in the various versions of CRR (the original Commission proposals, the EP Economic and Monetary Affairs Committee’s (ECON) position and Council general approach).

Comments on these discussion papers are due by 23 March. (Source: Retail Deposits Subject to Higher Outflows for the Purposes of Liquidity Reporting under CRR and Defining Liquid Assets in the LCR under CRR)