- Question ID
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2013_191
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Liquidity risk
- Article
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425
- Paragraph
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2
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
- Article/Paragraph
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-
- Type of submitter
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Credit institution
- Subject matter
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Consideration from residual values in the LCR calculation
- Question
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As significant inflows from residual values of large portfolios of leased cars are not regulated within Part 6 of Regulation (EU) No 575/2013 (CRR) how may institutions who professionally manage such portfolios take those values into account?
- Background on the question
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While residual values from leasing contracts are explicitly dealt with in Article 134 (7) of CRR no equivalent rule is given for the LCR-inflows in Article 425 (2) of CRR. Banks with a significant car leasing portfolio (e.g. like captive banks) poses in depth market and expert knowledge to timely adjust the expected market values of the leased cars. These expected market values are verified in consideration of independent external market prognosis (provided for example by Eurotax Schwacke/Glass) on a monthly basis. Furthermore the last forecast of the residual value of each car is back tested by the actual market price to adjust the market valuation processes if necessary. Amendments in the expected market values result in an adaption of the residual value provision. Based on long-term contracts with used-car dealers the cars returned are evaluated and sold to those dealers, usually with no losses on the portfolio as provisions are set up conservatively. The consideration of the residual value would follow the premise to use conservative estimated residual values which reflect – if necessary – additional market uncertainty which is not fully covered by the prognosis of the independent external market prognosis.
- Submission date
- Final publishing date
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- Final answer
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Article 32(1) of Commission Delegated Regulation (EU) No. 2015/61 provides that liquidity inflows be, inter alia, contractual in nature. The sale proceeds of the residual value of a leased car upon expiry of the lease are typically not contractually fixed and therefore such proceeds, even if conservatively estimated, cannot be taken into account as a contractual inflow. Liquidity inflows therefore can only be considered when the cars are effectively sold. Furthermore, the residual values of leased cars returned to the institution may not be considered to be HQLA.
DISCLAIMER
This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the European Commission because it is a matter of interpretation of Union law.
- Note to Q&A
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Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.