We propose the first application date should be as of January 2018, consistent with the full phasing in of the LCR requirement.
A first application date of January 2018 will allow for a full four quarters of average LCR calculation in 2017, based on the revised Delegated Act LCR calculation template which will be implemented in Q3 2016.
A January 2018 application date will mitigate the requirement for the transitional period required in the event that the LCR disclosure requirement was to apply from June 2017.
We agree with the explanatory text which states that the LCR is a very short term metric designed for stress scenarios, which makes it exposed to considerable volatility in the short run and thus prone to rapid change.
The summary level items proposed in the consultation form the major components of the ratio calculation. These components of the calculation would be available for disclosure more frequently than annually.
The proposed template on LCR quantitative disclosures should be limited to the same summary level items which are identified as forming the major components of the ratio calculation.
The qualitative disclosure table should allow flexibility for respondents to provide information they believe to be relevant to disclose. This is important mainly because different respondents will have different business models and face varying levels of liquidity risk.
It is questionable whether presenting these disclosures in a rigid tabular format would add much value, and, depending on the location of the disclosures, this could cause information to be duplicated (e.g. some banks already disclose some of this information in other sections of their annual reports).
We are concerned at the level of granularity proposed within these guidelines. We believe that the detail required as part of these proposals will not add value for many investors or other market participants.
The proposed granularity of information is likely to exceed the information requirements of most users, and may create confusion, thus hindering the objective of enhancing transparency of institutions’ liquidity risk.
The requirement to disclose an average LCR based on daily observations gives rise to operational complexities, due to the differing timescales provided for LCR calculation on a daily basis vs. the month end regulatory submission remittance dates.
Daily LCR calculations are designed to provide timely information to monitor limits, with information generally required on a next day basis. Regulatory submission of LCR at the month end date allows 30 days for preparation of the returns (15 days effective from Q2 2017).
In view of the short timeframe for calculating LCR on a daily basis, improvements are likely to require further IT system enhancements. IT system changes are costly to implement and generally have an extended delivery period. This may propose challenges with respect to the application date proposed for the LCR disclosure guidelines
We propose a disclosure of average based on month-end calculation of LCR rather than daily, for the following reasons:
1. The month-end LCR calculation is already designed to support external disclosure (ie. the month-end regulatory submission requirement).
2. We do not observe significant changes in LCR at month-end dates vs. other dates in the month. Therefore a simple average of month-end LCR calculations is unlikely to present a materially different view of our liquidity risk position, as compared to an average of daily calculations.