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Monitoring
• The application of the requirements follow the scope set out in Basel II
• LCR should be reported monthly, with the ability to increase frequency to
weekly or daily in stressed situations, and NSFR should be reported at least
quarterly.
Liquidity Coverage Ratio
• Ensure that a bank has enough unencumbered, high-quality liquid assets that
can be converted into cash to meet its liquidity needs for a 30 day time
horizon under severe liquidity stress
o Stock of high quality liquid assets/Total net cash outflows over the next
30 calendar days ≥ 100%
• The scenario entails:
o Run off of a proportion of retail deposits
o Partial loss of unsecured wholesale funding capacity
o Partial loss of secured, short-term financing
o Additional contractual outflows that would arise from a downgrade of
up to 3 notches of the banks public credit rating
o Increases in market volatilities that impact the quality of collateral or
potential future exposure of derivative positions
o Unscheduled draws on committed but unused credit and liquidity
facilities that the banks has provided to clients
o Potential need for the bank to buy back debt or honor non-contractual
obligations
• High quality liquid assets
o Fundamental Characteristics
Low credit and market risk
Ease and certainty of valuation
Low correlation with risky assets
Listed on a developed and recognized exchange market
o Market Related Characteristics
Active and sizeable market
Presence of committed market makers
Low market concentration
Flight to quality
o Level 1 Assets (no limits)
Cash
Central bank reserves
Marketable securities
• Assigned 0% risk weight
• Traded in large, deep and active cash markets
• Proven record as liquid source
o Level 2 Assets (up to 40% of the stock)
Marketable securities
• Assigned 20% risk weight
Corporate and covered bonds
o For jurisdictions with insufficient liquid assets one may utilize:
Contractual committed liquidity facilities from the relevant
central bank
Foreign currency liquid assets
Additional use of Level 2 assets with higher haircuts
• Total net cash outflows
o Outflows – Min {inflows: 75% of outflows}
• Cash Outflows
o Retail deposit run-off – Deposits placed with a bank by a natural person
Stable deposits (run off rate of 5% or higher)
Less stable deposits (run off rate of 10% of higher)
Retail fixed term deposits – Deposits with a withdrawal notice of
30 days
o Unsecured wholesale funding run-off – Liabilities and obligations that
are raised from non-natural persons and aren’t collateral
Funding from small business: 5%, 10% and higher – Same
bucket definitions as retail deposit run-off apply
Funding with operational relationships: 25% run off rate given
Deposits from networks of cooperative banks: 25% run off rate
given
Funding by non financial corporate, sovereigns, central banks
and public sector entities: 75% run off
Funding by other legal entities: 100% run off factor
o Secured funding run off – Liabilities that are collateralized
In the case of a loss on short term transactions, subsequent
transactions are limited to those backed by high-quality liquid
assets
o Other funds:
Derivatives payable: 100% run off
Contractual obligations to extend funds within 30 days – 100%
outflow rate
All other obligations are subject to national run off rates (eg
letters of credit)
• Cash Inflows
o Amount of inflows that can offset outflows is capped at 75% of outflows
o Reverse repos and securities
Level 1 assets – assumed to roll over: 0% inflow
Level 2 assets: 15% inflow
o Lines of credit: 0% outflow
o Others
Retail and small business inflows: 50% inflow
Financial institution counterparties: 100% inflow
Non-financial counterparties: 50% inflow
Operational deposits: 0% inflow
Derivatives receivable: 100% inflow
All other inflow percentages should be determined appropriately
Net Stable Funding Ratio
• Establish a minimum acceptable amount of stable funding based on the
liquidity of assets over a one year horizon to ensure that long terms assets
are funded with at least a minimum amount of stable liabilities
o Available amount of stable funding/Required amount of stable funding
> 100%
• Definition of available stable funding
o Capital
o Preferred stock with maturity of equal to or greater than one year
o Liabilities with effective maturities of one year or greater
o Portion of non-maturity deposits and/or term deposits with maturities
of less than one year
o Portion of wholesale funding with maturities of less than a year
• Ensure stable funding over one year in the case of:
o A significant decline in profitability or solvency arising from increased
risk
o A potential downgrade in a debt, counterparty credit or deposit rating
o A material event that calls into question reputation or credit quality
• Encumbered assets on the balance sheets receive a 100% RSF
• For assets and liabilities with a remaining maturity of less than one year, the
committee will gather data to allow analysis on buckets of both assets and
liabilities maturing within the one-year horizon to further consider the
treatment of these instruments in the NSFR.
Monitoring Tools
• Contractual Maturity Mismatch
o Identify the gaps between the contractual inflows and outflows of
liquidity for defined time bands.
No rollover of existing liabilities is assumed to take place
A bank should record all securities flows
o A bank should be able to indicate how it plans to bridge any identified
gaps in its internally generated maturity mismatches.
• Concentration of Funding
o Identify those sources of wholesale funding that are of such
significance that withdrawal of this funding could trigger liquidity
problems.
Banks should monitor both the absolute percentage of the
funding exposure, as well as significant increases in
concentrations.
o Significant Counterparties or Instruments/Products
Accounting for more than 1% of the bank’s total balance sheet.
o Significant currency
Accounting for more than 5% or more of the bank’s total
liabilities.
o Should be reported for the time horizons of less than 1 month, 1-3
months, 3-6 months, 6-12 months and longer than 12 months.
• Available Unencumbered Assets
o Provides supervisors with data of banks’ available unencumbered
assets.
Banks should report the amount, type and location of available
unencumbered assets
In addition to providing the total amounts available, a bank
should report these items categorized by:
• Currency
• Estimated haircut that the secondary market and/or
relevant central bank would require
• Expected monetized value of the collateral
• Location of assets
• LCR by Significant Currency
o Monitor the LCR in significant currencies.
o Foreign Currency LCR = Stock of high-quality liquid assets in each
significant currency/Total net cash outflows over a 30-day period in
each significant currency.
o A currency is considered significant if it accounts for 5% or more of the
bank’s total liabilities.
o No internationally defined minimum required threshold so supervisors
could set minimum monitoring ratios for the foreign exchange LCR.
• Market-Related Monitoring Tools
o This data can be monitored at the following levels to focus on potential
liquidity difficulties:
Market-wide information - Absolute level and direction of major
markets can be monitored including:
• Equity prices
• Debt markets
• Foreign exchange markets
• Commodities markets
• Indices related to specific products.
Information on the financial sector – Market correlation
Bank specific information – Lose of confidence or identified risks
in an institution