Response to consultation on draft revised Guidelines on recovery plans indicators
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The purpose of the recovery indicators is to identify potential recovery situations. Depending on their business model, individual banks would hold different mixes of CB placements, HQLA securities that are CB eligible and HQLA securities that are not CB eligible [CB eligibility is not a HQLA condition as per the LCR / NSFR rules]. Accordingly a bank might at a certain point of time be short of CB Eligible assets, but still maintain a sufficient amount of Central Bank placements and other HQLA assets to sustain a strong overall liquidity position. Due to its business model as a depositary bank, besides HQLA in form of securities, SSBI usually maintains similar/ high amounts of cash reserves readily available. Hence, for banks such as SSBI, the “Available unencumbered assets central bank’s (CB) eligible” indicator would not show the full picture of available HQLA. In addition, as the criteria for CB eligibility is at the discretion of the ECB, these eligibility criteria could change over time, making it very challenging to accurately forecast the “Available unencumbered assets central bank’s (CB) eligible”.
With regards to the “Liquidity Position” indicator, it is unclear what value such a separate indicator would provide as it would overlap with existing indicators such as the LCR, which in its numerator puts “available liquid assets” into relation to expected in- and outflows over the next 30 days. SSBI currently maintains two Liquidity Risk related Recovery Indicators, namely the LCR (Surplus) and the Liquidity Stress Testing (SLAB), which are also part of its overall Risk Appetite Framework.
SSBI therefore recommends to make these indicators optional, a recommendation that is also shared by the European Banking Federation.
Question 9: Do you have any comments on the proposed changes to the minimum list of recovery plan indicators?
With regards to the suggested “Changes to the minimum list of recovery indicators”, particularly the addition of the liquidity risk related indicators “Available unencumbered assets central bank’s (CB) eligible” and the “Liquidity Position”, State Street Bank International GmbH (SSBI) is of the opinion that both indicators are not suitable recovery indicators and should only be optional instead of being part of the minimum list of indicators.The purpose of the recovery indicators is to identify potential recovery situations. Depending on their business model, individual banks would hold different mixes of CB placements, HQLA securities that are CB eligible and HQLA securities that are not CB eligible [CB eligibility is not a HQLA condition as per the LCR / NSFR rules]. Accordingly a bank might at a certain point of time be short of CB Eligible assets, but still maintain a sufficient amount of Central Bank placements and other HQLA assets to sustain a strong overall liquidity position. Due to its business model as a depositary bank, besides HQLA in form of securities, SSBI usually maintains similar/ high amounts of cash reserves readily available. Hence, for banks such as SSBI, the “Available unencumbered assets central bank’s (CB) eligible” indicator would not show the full picture of available HQLA. In addition, as the criteria for CB eligibility is at the discretion of the ECB, these eligibility criteria could change over time, making it very challenging to accurately forecast the “Available unencumbered assets central bank’s (CB) eligible”.
With regards to the “Liquidity Position” indicator, it is unclear what value such a separate indicator would provide as it would overlap with existing indicators such as the LCR, which in its numerator puts “available liquid assets” into relation to expected in- and outflows over the next 30 days. SSBI currently maintains two Liquidity Risk related Recovery Indicators, namely the LCR (Surplus) and the Liquidity Stress Testing (SLAB), which are also part of its overall Risk Appetite Framework.
SSBI therefore recommends to make these indicators optional, a recommendation that is also shared by the European Banking Federation.