Question ID:
2015_2031
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Liquidity risk
Article:
425
Paragraph:
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
Article/Paragraph:
Article 33 (1)
Disclose name of institution / entity:
Yes
Name of institution / submitter:
HSBC Holdings plc
Country of incorporation / residence:
UK
Type of submitter:
Credit institution
Subject Matter:
Will the application of the cap on inflows be applicable at the single material currency level
Question:

Should the inflow cap, limiting inflows to 75% of liquidity outflows, apart from specifically outlined exemptions, be applied in relation to single material currency LCR reporting or just at the all currency combined LCR calculation?

Background on the question:

The delegated act allows cash outflows and inflows from foreign currency derivative transactions that involve a full exchange of principal amounts on a simultaneous basis, or within the same day (namely deliverable FX transactions) to be calculated on a net basis for each counterparty. However, when reporting single currency positions, this will clearly still lead to an inflow in one currency and an outflow in the other currency, the effect of which, over a 30 day period would be to gross up the balance sheet of material single currency positions. The above reporting could trigger a possible 75% inflow cap at single currency level which would not occur at consolidated currency level. We believe the inflow cap was not intended to be put in place to discourage foreign exchange transactions, but instead to not rely on lending inflows to cover outflows.

Date of submission:
02/06/2015
Published as Final Q&A:
01/04/2016
Final Answer:

Article 4(5) of the Delegated Regulation (EU) 2015/61 specifies that credit institutions shall calculate and monitor their liquidity coverage ratio in the reporting currency and in each of the currencies subject to separate reporting in accordance with Article 415(2) of Regulation (EU) No 575/2013 as well as for liabilities in the reporting currency.

Article 20(3) of this Delegated Regulation mentions that net liquidity outflows have to be calculated in accordance with the formula laid down in Annex II. According to this formula, net liquidity outflows equal total outflows less the reduction for fully exempt inflows less the reduction for inflows subject to the 90% cap less the reduction for inflows subject to the 75% cap.

Consequently the LCR in each of the currencies subject to separate reporting in accordance with Article 415(2) of Regulation (EU) No 575/2013, as well as for liabilities in the reporting currency, shall be calculated applying the cap on inflows as defined in Article 33(1) of the Delegated Regulation also taking into account those inflows subject to a 90% cap or exempted from the cap according to Articles 33(3) to 33(5) of the Delegated Regulation, when applicable.

The application of caps at a single material level serves only reporting and monitoring purposes as the liquidity coverage requirements imposed by Article 4(2) of the Delegated Regulation (EU) 2015/61 do not apply individually to each of the significant currencies a credit institution reports. 

Status:
Final Q&A
Answer prepared by:
Answer prepared by the EBA.
Note to Q&A:

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

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