Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Supervisory reporting - Liquidity (LCR, NSFR, AMM)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Annex XIII
Disclose name of institution / entity:
Type of submitter:
Subject Matter:
Eligibility of pooled assets for liquidity purposes

Please provide your recommendation as to procedure for allocation of assets within collateral pools to encumbered/unencumbered for LCR/NSFR purposes

Background on the question:

Article 416(3)(a) of CRR allows inclusion of assets standing available within collateral pools (provided eligibility criteria for liquid assets as well as operational requirements are met) into liquid assets, however it does not provide guidance with regard to how to determine which assets within the pool are deemed encumbered and which are deemed standing available. When borrowings are done against collateral pools, there is no 'one to one' relationship between a security and a borrowing as in traditional repos. Borrowings are done against the value of the pool (after haircut) and are not assigned to any specific assets. Borrowings have different maturities. If only part of the borrowing facility is used (i.e. not all available for borrowing amount is borrowed), then headroom arises, i.e. amount of the unutilised borrowing facility. And such headroom is not allocated to any particular assets, but is the cash which can be borrowed at any time without any restrictions. For the purposes of supervisory reporting institutions are required to report all liquid assets in appropriate categories, which implies that assets standing available within collateral pools (and corresponding to the headroom) should be identified and classified accordingly. Also for the purposes of supervisory reporting, assets used as collateral shall be reported within encumbrance brackets, which implies that individual encumbered assets from the pool should be identified and assigned to particular borrowings.

Date of submission:
Published as Final Q&A:
Final Answer:
As the question is three-fold so is the answer.
1. The first question is whether unused borrowing facility against a collateral pool should be treated as cash and how the assets should be reported in this collateral pool.
In accordance with Article 416 (3)(a) of the Regulation (EU) No. 575/2013 (CRR), unencumbered assets or assets standing available within collateral pools to be used to obtain additional funding under committed but not yet funded credit lines available to the institutions should be reported as liquid assets, provided they meet all other requirements. They should be reported in the corresponding section of the template C 51.00 Liquid Assets of Annex XII of Regulation (EU) No 680/2014 - ITS on Supervisory Reporting of institutions (ITS). However, unused borrowing facility against a collateral pool should not be treated as or reported as cash in template C 51.00 (row 010) as cash refer to the "total amount of cash including coins and banknotes/currency" according to Article 416(1)(a) of the CRR.
2. The second question is whether institutions are allowed to allocate assets in the pool eligible as liquid assets (cf. above) using the assumption that assets are encumbered in order of increasing liquidity value in the LCR, i.e. assets ineligible for the LCR are assigned first, followed by assets of high liquidity and credit quality and then assets of extremely high liquidity and credit quality.
As assets in collateral pools are not assigned to individual borrowings and the exact order of encumbrance of the individual assets in the collateral pool is unknown the reporting institution, provided that there are not any further constraints for the following assumption, can assume that assets are encumbered in order of increasing liquidity value (pecking order), e.g. less liquid assets are assigned before assets of high liquidity and credit quality and so forth.
3. Within this context a third question could arise: After following the criteria of assignation described in point 2 encumbered assets are identified within the pool. The question arising now is which of the encumbered assets could be allocated to periods of encumbrance below and above 30 days?
If the institution cannot determine which specific assets in the collateral pool are used to collateralise the transactions with a residual maturity greater than 30 days, the institution should assume that assets are encumbered to these transactions in order of increasing liquidity value in such a way that assets with the lowest liquidity value in the LCR are assigned to the transactions with the longest residual maturities first.
Final Q&A
Answer prepared by:
Answer prepared by the EBA.