Question ID
2016_2695
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Liquidity risk
Article
418
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
8(5)
Type of submitter
Credit institution
Subject matter
Liquid assets valuation in case of hedging with collateralized derivatives.
Question

Should the potential close-out of hedges of securities included within the liquidity buffer be taken into account when hedging is performed through collateralized derivatives?

Background on the question

The institution hedges with collateralized derivatives some of the bonds eligible for being included within the buffer (HQLA) in the context of LCR reporting. Collateral is made of cash or other L1 assets. It is not clear if the fair value of those deals are to be deducted from the valuation of hedged instruments.

Submission date
Final publishing date
Final answer

According to Article 8(5)(b) of the Commission Delegated Regulation (EU) No 2015/61 the net liquidity outflows and inflows of the potential close-out of hedges of securities should be assessed and included (if any) in the valuation of the relevant assets according to Article 9 of the Commission Delegated Regulation. Institutions shall consider the net flow (either outflow or inflow) that would arise if the hedge was to be closed out at the relevant date. The net flow should also reflect the effect of collateral to be received/posted in derivative transactions that qualifies as liquid assets as per paragraph 3 of Article 21.

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 updated in the light of the changes introduced to Commission Delegated Regulation (EU) No 2015/61.

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.