Question ID
2015_1855
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Liquidity risk
Article
460
Paragraph
3
Subparagraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
Article/Paragraph
32 (3)(2)
Type of submitter
Credit institution
Subject matter
Reporting of secured lending if an institution has no possession of the collateral
Question

Does a loan qualify as collateralised lending if the collateral has been pledged by the debtor, but the bank can only use the collateral in the event of a default of the customer or should loans only be seen as collateralised lending if the bank is in possession of the collateral (meaning the collateral is included in the bank’s balance sheet)? What does collateralised by collateral that qualifies as a liquid asset mean? Does it mean that the bank has reported the collateral as High Quality Liquid Assets (HQLA) in the LCR, or does it mean that if the bank will call the collateral in case of a default of the debtor the bank can than report that gained collateral as HQLA?

Background on the question

Article 32(3)(b) of the Delegated Act for the reporting of the Liquidity Coverage Requirement states that collateralised loans should receive a 0% inflow if the collateral fulfils the requirements for HQLA. Inflows within the next 30 days from loans collateralised by other collateral (non HQLA) should receive a 100% inflow.

Submission date
Final publishing date
Final answer

General and operational requirements that must be fulfilled by liquid assets to be included in the numerator of the Liquidity Coverage Ratio are specified in Articles 7 and 8 of the Commission Delegated Regulation (EU) No 2015/61 of 10 October 2014 on the Liquidity Coverage Requirement for credit institutions.

If the credit institution does not have ready access to, or may not dispose of, the collateral pledged by the debtor (including if the bank can only use the collateral in the case of a default of the debtor), they do not qualify as liquid assets in accordance with Articles 7(2) and 8(2) of the Commission Delegated Regulation (EU) No 2015/61 since the credit institution does not have ready access to the collateral, and hence is not able to monetise them at any time during the 30 calendar day stress period.

Monies due when collateralised by assets that do not qualify as liquid assets in accordance with Title II shall be taken into account in full according to Article 32(3)(b) of the Commission Delegated Regulation (EU) No 2015/61.

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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