EBA confirms EU banks’ solid overall liquidity position but warns about low foreign currency liquidity buffers

17 December 2021

The European Banking Authority (EBA) published today its EBA Report on liquidity measures, which monitors and evaluates the liquidity coverage requirements currently in place in the EU. The liquidity coverage ratio (LCR) of EU banks stood at 176% in June 2021, materially above the minimum threshold of 100%. At the same time, the EBA renews its concern of EU banks’ low foreign currency LCR values and encourages banks and supervisors to work towards improving the situation.

The EBA Report on liquidity measures shows that EU banks have continued to improve their LCR. At end-June 2021, EU banks' average LCR stood at 176% and only one bank reported LCR levels below 100%. The extended access to additional liquidity via extraordinary central bank facilities supported the banks’ efforts to maintain their LCR buffers.

A more in-depth analysis of potential currency mismatches in LCR levels reveals that EU banks continue to hold materially lower liquidity buffers in some foreign currencies, in particular US dollar. This situation increases the banks’ vulnerability for disruptions in foreign exchange markets and may make them overly dependent on central bank foreign currency swap lines.

The EBA renews its urge, expressed in the previous reports, for the affected banks and supervisors to improve the situation. The Report also contains a section on the impact of the LCR on lending activities.

Note to the editors

  1. This Report has been drafted in accordance with Article 509(1) of the Capital Requirements Regulation (CRR).
  2. Article 412(1) of the CRR foresees the possibility of monetising liquid assets during times of stress (resulting in an LCR below 100%) as maintaining the LCR at 100%, under such circumstances, could produce undue negative effects on the credit institution and other market participants.
  3. The results of the Report on liquidity measures are presented separately for G-SIIs and O-SIIs and other banks (non G-SIIs or O-SIIs). Some figures are presented by country.

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Franca Rosa Congiu

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