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Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)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 XXV -Reporting on liquidity (part 4: collateral swaps)
Disclose name of institution / entity:
Type of submitter:
Credit institution
Subject Matter:
Treatment of collateral swaps with underlying collateral pools/ baskets

In case of collateral swaps transactions involving exchange of collateral baskets where no direct link can be established between securities in underlying pools, how should the securities be allocated to the reporting rows in template C75 when reporting in main currency and in significant currencies?

Background on the question:

Annex XXV to ITS on Supervisory Reporting states that “Each collateral swap transaction shall be assessed individually and the flow reported as either an outflow or an inflow (per transaction) in the corresponding row. If one trade contains multiple categories of collateral type (e.g. a basket of collateral) then for reporting it shall be split into parts corresponding with the template rows and assessed in parts.” There are multiple ways of splitting the collateral baskets (e.g. allocation pro-rata or worst/best method) and since the choice of method would result in different in-/outflow amounts, additional guidance is sought on the allocation method to be applied in the reporting (main reporting currency and significant currency reporting). Consider a theoretical example where a bank lends collateral basket A containing 3 securities with the total value of 1000K (350K in Level 1 EHQ covered bonds, 450K in Other level 2B?, and 200K in Non-Liquid Assets) and borrows collateral basket B containing 3 securities with the total value of 1100K (220K (=20% of the basket) in Level 1 excl.EHQ covered bonds, 550K (=50% of the basket) in Level 2B residential CQS1 ABS, and 330K (=30% of the basket) in Other 2B). Assume that this swap matures in 30 days. Step 1: MtM amounts can be allocated based on the ratio of Borrowed to Lent (in this case 1100K/1000K=1,1) resulting in 385K (of basket B) to be allocated to 350K in Level 1 EHQ covered bonds (of basket A), 495K allocated to 450K in Other level 2B, and 220K allocated to 200K in Non-Liquid Assets). Step 2: In order to determine the inflow/outflow amount, different liquidity classes of securities borrowed in basket B should be allocated to securities lent in basket A. We foresee two possible options: 1) allocation pro-rata, where securities borrowed are allocated based on their proportion in the original pool (in our example, basket B), resulting in e.g. 385K allocated to Level 1 EHQ covered bonds to consist of: 77K (=20% of 385K) in Level 1 excl.EHQ covered bonds + 192,5K (=50%) in Level 2B residential CQS1 ABS + 115,5 (=30%) in Other 2B (i.e. rows 030, 060 and 090 of C75, resulting in inflow of 78K and outflow of 7K); etc. Following this approach C75 row 010 would report 298K in Outflows and 78K in Inflows. 2) similarly to answer in Q&A 2014_801 “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.” resulting in e.g. 385K allocated to Level 1 EHQ covered bonds to consist of: 330K in Other 2B + 55K in Level 2B residential CQS1 ABS (i.e. rows 060 and 090 of C75, resulting in inflow of 144K and outflow of 0K); etc. Following this approach C75 row 010 would report 254K in Outflows and 144K in Inflows.

Date of submission:
Published as Final Q&A:
Final Answer:

As provided in Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) as amended by Regulation (EU) 2016/322, institutions have to report outflows and inflows arising from collateral swap transactions that are maturing within 30 calendar days, i.e. any transaction maturing within 30 calendar days in which non-cash assets are swapped for other non-cash assets.

As specified in Q&A 2014_801, assets that have been exchanged as collateral in secured transactions shall be assigned in pecking order, i.e. less liquid assets shall be assigned before assets of higher liquidity and credit quality.

In the context of swap transactions of collateral baskets or pools that are maturing within 30 calendar days, institutions have to assign individually non-cash assets lent to non-cash assets borrowed according to categories as defined in Title II, Chapter 2 of Regulation (EU) 2015/61 (LCR DA) starting from the least liquid combination (i.e. non-liquid non-cash assets lent, non-liquid non-cash assets borrowed). Any excess collateral within one combination is moved to the higher category, so that up to the most liquid combination, the relevant combinations are fully matched. Any overall excess collateral is then captured in the most liquid combination.

The cashflow for each combination of assets is calculated according to Article 28(4) and Article 32(3)e) LCR DA. Hence, for each combination the positive difference between the haircuts applicable to the assets considered in the combination is multiplied with the market value of the assets which are subject to the lower haircut according to Chapter 2 LCR DA.

In the example, five combinations can be identified (market value in brackets):

  1. Non-liquid assets lent (200) vs Other Level 2B assets borrowed(200)
  2. Other Level 2B assets lent (130) vs Other Level 2B assets borrowed (130)
  3. Other Level 2B assets lent (320) vs Level 2B Residential borrowed (320)
  4. Level 1 EHQ CB lent (230) vs Level 2B Residential borrowed (230)
  5. Level 1 EHQ CB lent (120) vs Level 1 EHQ CB borrowed (220)

For each combination, the net liquidity outflow or inflow will be calculated as:

  1. Cash outflow  of 100 (200*(0,5-0))
  2. No cash flow (130 * 0.50 – 130 * 0.5130*(0,5-0,5))
  3. Cash outflow of 80 (320*(0,75-0,5))
  4. Cash inflow of 41 (230*(0,93-0,75))
  5. Cash outflow of 0 ((220*(0,93-0,93))

The calculation above results in a total net cash outflow of 139 which is exactly the same as if comparing the total liquidity value of the two baskets.

As provided in the instructions for template C 75.00 of Annex XXIV to the ITS on Supervisory Reporting, in the case of a reporting on significant currencies, the reported balances shall comprise only those which are denominated in the significant currency to ensure that currency gaps are correctly reflected. This may mean that only one side of the transaction is reported in the significant currency template, with corresponding impact on the excess liquidity value.

Final Q&A
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