We agree with the proposed mechanism of notification as it assures a level playing field. However, the timing of notification may not be possible due to market changes. The updating of the notification should not be annually, but be at a shorter interval.
It should be noted that the calculation of the credit line fee according to the pricing formula envisaged by the EBA is potentially challenging from an operational point of view, especially when the assets kept to secure the credit lines are non-marketable assets. Depending on the hypothesis and the quality of the data retained for the analysis, the results of the fee valuation may differ significantly between the banks; which is not contributing to a level playing field. Therefore, we favour a fee that could be valued based on management data provided by the banks, but that would be identical for all the institutions using the derogation B.
We do not see the steps as necessary as the use of derogations comes with a cost. Thus, banks by nature have a high incentive to reduce the need for derogations by reducing the need for liquid assets by sound liquidity management and increasing the holdings of liquid assets as much as possible from the market. See General Remarks.
See our response to Question 2 above.
For currencies not actively traded in global foreign exchange markets we find 10 years is a very long period, 5 years would be more appropriate.
The additional 8% haircut for debt in currencies different from the currency of the net cash outflows does not take into account the fact that currency risk may be hedged (as addressed by Article 418(1): “If the institution hedges the price risk associated with an asset, it shall take into account the cash flow resulting from the potential close-out of the hedge.”). Thus, there is a risk of counteracting the rule of applying this 8% cap on any discrepancy between the distribution by currency of Liquid Assets and Net Cash Outflows.
We agree that the use of derogation should not be advantageous; however we are concerned that the EBA specifies the price conditions of Central Bank facilities to banks, as well as the haircuts to be applied by the Central Bank to the collateral. This seems beyond its mandate. These credit facilities will be part of the tools available for the Central Bank to lead the monetary policy; hence the pricing conditions should remain its prerogative.
If the EBA retains a pricing formula of these credit lines in its final RTS, we draw its attention on the fact that the resulting fee should not be too high, or the banks will not resort to these facilities, favouring an arbitrage between the fee of these credit lines and the cost of term borrowings from the Central Bank placed on an overnight basis at the Central Bank.
We do not find the proposal to limit the total use of derogations appropriate. Rather than setting constraints on a micro level, the usage of derogations should be supervised by appropriate authorities with the possibility of taking additional steps towards the banks using derogations if the total usage of derogations exceeds the total estimated shortage of liquid assets. See General Remarks.
The use of derogations is already strictly framed since firstly the banks have to demonstrate that they have made all the possible efforts to reduce their need for these derogations and moreover there are specific haircut and pricing conditions to offset any economic incentive to use these derogations. As already stated, we find that the methodology gives results which are far less robust then what is needed to cap the usage. Consequently, there is no need to add another constraint such as this quantitative cap.
If this cap is retained, the percentage of use of the derogations should also take into account a LCR target at 110% in order to be consistent with the methodology used to define the shortage percentage of liquid assets.
We do not agree with point 14 in the analysis of the cost and benefit impact of the proposals.
The requirements raised in this RTS will raise material costs for the institutions that will use these derogations, including increased operational costs such as increased reporting requirements and efforts made to reduce the need for the derogations.