Should banks include in the LCR calculation deposits from this category with residual maturities longer than 30 days? Should outflow rate (40%) be applied to all deposits from this category or only to deposits with residual maturities shorter than 30 days?
It is unclear if a bank should include all deposits from this category or only deposits with residual maturities shorter than 30 days. LCR is calculated in 30 days horizon, so only outflows up to 30 days should be included in calculation. Depositors from this category (unlike retail depositors) are rather not prone to early withdrawals of deposits. Example: Big corporation, being not a financial client and not a retail client, which placed in the bank deposits with a maturity of 3 month. At the date of LCR calculation, residual maturity of this deposit is 2 months, but the client can withdraw it earlier, even tomorrow (losing interest up to the date). Should the bank include this deposit in LCR calculation, applying to it 40% outflow rate?
According to Articles 22(2)(b) and 27 and 28 of Delegated Regulation (EU) 2015/61(DR) the current outstanding amounts of other liabilities that become due, can be called for pay-out by the issuer or by the provider of the funding or entail an expectation by the provider of the funding that the credit institution would repay the liability during the next 30 calendar days will give rise to liquidity outflows.
Deposits as defined under Articles 27 and 28 of Delegated Regulation (EU) 2015/61 (DR) that have a contractual residual maturity longer than 30 days can be excluded from the LCR calculation provided that the funds are not callable by the provider according to the criteria provided for by the above mentioned Article 22(2)(b) of Delegated Regulation (EU) 2015/61(DR) (e.g. the call is subject to a contractually defined and binding notice period surpassing the 30-day horizon) and do not entail an expectation by the provider of the funding that the credit institution would repay the liability during the next 30 calendar days. The deposits of the particular category considered in the background would not meet these criteria.
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.