Liquidity Requirements under CRR

As part of the Basel 3 rules, the Basel Committee on Banking Supervision (BCBS) specified a minimum liquidity standard for banks; the Liquidity Coverage Ratio (LCR). The LCR is intended to promote the short-term resilience over a 30 day horizon of a bank’s liquidity risk profile in a stress scenario. The LCR is the ratio of the volume of High Quality Liquid Assets (HQLA) that could be used to raise liquidity and of the total volume of net stressed outflows, arising from both actual and contingent exposures.

This requirement has been implemented into European Legislation via the Capital Requirements Regulation (CRR). The CRR specifies that the components of the LCR must be reported to supervisors from 2014. However, compliance with the standard, which is subject to the European Commission specifying its final form, is not required until 2015. The initial minimum ratio for compliance in 2015 is 60 %. As the CRR LCR rule set is still subject to further review during 2014, and in order to allow for better comparability, our pro forma LCR of 107 % as per December 31, 2013 has been calculated in accordance with the Basel 3 specification.

Proposals for a second standard, the Net Stable Funding Ratio (NSFR), were originally issued by the BCBS in December 2010, with an update released in January 2014. Although currently in consultation phase, the NSFR is expected to require banks to accurately match maturities of liabilities to assets over a longer term horizon. The NSFR also forms part of the reporting requirements for European banks, in accordance with the CRR. The determination of the NSFR is not specified yet by CRR/CRD 4. Its final specification will be elaborated based on an assessment of the supervisory reporting results. Based on a legislative proposal from the European Commission, the NSFR may be introduced as a minimum standard by 2018, following the European legislative process.

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