The EBA publishes Report on interdependent assets and liabilities in the net stable funding ratio

The European Banking Authority (EBA) published today its Report on the treatment of interdependent assets and liabilities in the net stable funding ratio (NSFR). This Report assesses the conditions under which assets and liabilities can be treated as interdependent in the NSFR and the description of the list of activities that are considered to meet those conditions. The EBA has only limited recommendations for the Commission at this stage, which concern extendable maturity triggers for covered bonds and indirect derivatives client clearing activities.

The treatment of interdependent assets and liabilities is limited to transactions where no funding risk exists for the institution, and as such, the activities are effectively exempted from stable funding requirements in the calculation of the NSFR. In this context, the EBA analysed if the conditions and definitions were met and whether they ensure the absence of funding risk or any amendment to them is necessary.

Regarding covered bonds with an extendable maturity trigger, the EBA considers that the trigger needs to be observable in markets as an objective indicator where the extension of the maturity of the covered bond will be automatic once the specific trigger/threshold is reached. Regarding client clearing activities, the EBA recommends adding the case of indirect derivatives client clearing activities to the established direct activities to make sure that the necessary safeguards envisaged here apply.

Legal basis, background, and next steps

The Report has been compiled in accordance with Article 428f (3) of the Capital Requirements Regulation (CRR), which mandates the EBA to monitor all assets and liabilities that are treated as interdependent to determine whether the conditions for the absence of funding requirement are met. The EBA is also mandated to report to the Commission on the results of that monitoring and to advise the Commission on whether an amendment to those conditions or an amendment to the list of activities that are considered to meet those conditions would be necessary.

The EBA will continue to monitor, as needed, other possible transactions that in the future might be reported by banks as interdependent assets and liabilities in the NSFR, in cooperation with competent authorities.