TITLE IU.K. THE LIQUIDITY COVERAGE RATIO
Article 1U.K.Subject matter
This Regulation lays down rules to specify in detail the liquidity coverage requirement provided for in Article 412(1) of Regulation (EU) No 575/2013.
Article 2U.K.Scope and application
1.This Regulation shall apply to credit institutions supervised under Directive 2013/36/EU of the European Parliament and of the Council(1).
2.Credit institutions shall comply with this Regulation on an individual basis in accordance with Article 6(4) of Regulation (EU) No 575/2013. The competent authorities may waive in full or in part the application of this Regulation on an individual basis in relation to a credit institution in accordance with Articles 8 and 10 of Regulation (EU) No 575/2013, provided that the conditions laid down therein are met.
3.Where a group comprises one or more credit institutions, the EU parent institution, the institution controlled by an EU parent financial holding company or the institution controlled by an EU parent mixed financial holding company shall apply the obligations laid down in this Regulation on a consolidated basis in accordance with Article 11(3) of Regulation (EU) No 575/2013 and all the following provisions:
(a)third country assets which meet the requirements laid down in Title II and which are held by a subsidiary undertaking in a third country shall not be recognised as liquid assets for consolidated purposes where they do not qualify as liquid assets under the national law of the third country setting out the liquidity coverage requirement;
(b)liquidity outflows in a subsidiary undertaking in a third country which are subject under the national law of that third country setting out the liquidity coverage requirement to higher percentages than those specified in Title III shall be subject to consolidation in accordance with the higher rates specified in the national law of the third country;
(c)liquidity inflows in a subsidiary undertaking in a third country which are subject under the national law of that third country setting out the liquidity coverage requirement to lower percentages than those specified in Title III shall be subject to consolidation in accordance with the lower rates specified in the national law of the third country;
(d)investment firms within the group shall be subject to Article 4 of this Regulation on a consolidated basis and to Article 412 of Regulation (EU) No 575/2013 in relation to the definition of liquid assets, liquidity outflows and inflows for both individual and consolidated purposes. Other than as specified in this point, investment firms shall remain subject to the detailed liquidity coverage ratio requirement for investment firms as laid down in the national law of Member States pending the specification of a liquidity coverage ratio requirement in accordance with Article 508 of Regulation (EU) No 575/2013;
(e)at a consolidated level the amount of inflows arising from a specialised credit institution referred to in Article 33 paragraphs (3) and (4) shall only be recognised up to the amount of the outflows arising from the same undertaking.
Article 3U.K.Definitions
For the purposes of this Regulation, the following definitions shall apply:
‘level 1 assets’ means assets of extremely high liquidity and credit quality as referred to in the second subparagraph of Article 416(1) of Regulation (EU) No 575/2013;
‘level 2 assets’ means assets of high liquidity and credit quality as referred to in the second subparagraph of Article 416(1) of Regulation (EU) No 575/2013. level 2 assets are further subdivided into level 2A and 2B assets in accordance with Chapter 2 of Title II of this Regulation;
‘liquidity buffer’ means the amount of liquid assets that a credit institution holds in accordance with Title II of this Regulation;
‘reporting currency’ means the currency in which the liquidity items referred to in Titles II and III of Part Six of Regulation (EU) No 575/2013 must be reported to the competent authority in accordance with Article 415(1) of that Regulation;
‘asset coverage requirement’ means the ratio of assets to liabilities as determined for credit enhancement purposes in relation to covered bonds by the national law of a Member State or a third country;
‘SME’ means a micro, small and medium-sized enterprise as defined in Commission Recommendation 2003/361/EC(2);
‘net liquidity outflows’ means the amount which results from deducting a credit institution's liquidity inflows from its liquidity outflows in accordance with Title III of this Regulation;
‘retail deposits’ means a liability to a natural person or to an SME, where the SME would qualify for the retail exposure class under the standardised or IRB approaches for credit risk, or a liability to a company which is eligible for the treatment set out in Article 153(4) of Regulation (EU) No 575/2013, and where the aggregate deposits by such SME or company on a group basis do not exceed EUR 1 million;
‘financial customer’ means a customer that performs one or more of the activities listed in Annex I to Directive 2013/36/EU as its main business, or is one of the following:
a credit institution;
an investment firm;
a financial institution;
a securitisation special purpose vehicle (‘SSPE’);
a collective investment undertaking (‘CIU’);
a non-open ended investment scheme;
an insurance undertaking;
a reinsurance undertaking;
a financial holding company or mixed-financial holding company;
‘personal investment company’ (‘PIC’) means an undertaking or a trust whose owner or beneficial owner, respectively, is a natural person or a group of closely related natural persons, which was set up with the sole purpose of managing the wealth of the owners and which does not carry out any other commercial, industrial or professional activity. The purpose of the PIC may include other ancillary activities such as segregating the owners' assets from corporate assets, facilitating the transmission of assets within a family or preventing a split of the assets after the death of a member of the family, provided these are connected to the main purpose of managing the owners' wealth;
‘stress’ shall mean a sudden or severe deterioration in the solvency or liquidity position of a credit institution due to changes in market conditions or idiosyncratic factors as a result of which there may be a significant risk that the credit institution becomes unable to meet its commitments as they fall due within the next 30 calendar days;
‘margin loans’ means collateralised loans extended to customers for the purpose of taking leveraged trading positions.
Article 4U.K.The liquidity coverage ratio
1.The detailed liquidity coverage requirement in accordance with Article 412(1) of Regulation (EU) No 575/2013 shall be equal to the ratio of a credit institution's liquidity buffer to its net liquidity outflows over a 30 calendar day stress period and shall be expressed as a percentage. Credit institutions shall calculate their liquidity coverage ratio in accordance with the following formula:
2.Credit institutions shall maintain a liquidity coverage ratio of at least 100 %.
3.By derogation from paragraph 2, credit institutions may monetise their liquid assets to cover their net liquidity outflows during stress periods, even if such a use of liquid assets may result in their liquidity coverage ratio falling below 100 % during such periods.
4.Where at any time the liquidity coverage ratio of a credit institution has fallen or can be reasonably expected to fall below 100 %, the requirement laid down in Article 414 of Regulation (EU) No 575/2013 shall apply. Until the liquidity coverage ratio has been restored to the level referred to in paragraph 2, the credit institution shall report to the competent authority the liquidity coverage ratio in accordance with Commission Implementing Regulation (EU) No 680/2014(3).
5.Credit institutions shall calculate and monitor their liquidity coverage ratio in the reporting currency and in each of the currencies subject to separate reporting in accordance with Article 415(2) of Regulation (EU) No 575/2013, as well as for liabilities in the reporting currency. Credit institutions shall report to their competent authority the liquidity coverage ratio in accordance with the Commission Implementing Regulation (EU) No 680/2014.
Article 5U.K.Stress scenarios for the purposes of the liquidity coverage ratio
The following scenarios may be regarded as indicators of circumstances in which a credit institution may be considered as being subject to stress:
the run-off of a significant proportion of its retail deposits;
a partial or total loss of unsecured wholesale funding capacity, including wholesale deposits and other sources of contingent funding such as received committed or uncommitted liquidity or credit lines;
a partial or total loss of secured, short-term funding;
additional liquidity outflows as a result of a credit rating downgrade of up to three notches;
increased market volatility affecting the value of collateral or its quality or creating additional collateral needs;
unscheduled draws on liquidity and credit facilities;
potential obligation to buy-back debt or to honour non-contractual obligations.
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).
Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36).
Commission Implementing Regulation (EU) No 680/2014 of 16 April 2014 laying down implementing technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council (OJ L 191, 28.6.2014, p. 1).