Question ID
2018_3730
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Liquidity risk
Article
416
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
Article/Paragraph
Article 7/2 and 8/2
Type of submitter
Credit institution
Subject matter
On demand secured lending of Level 1 assets
Question

Can Level 1 assets that are used for on demand secured lending transactions be considered as liquid assets for the Liquidity buffer?

Background on the question

It is not clear to us, how on demand secured lending positions shall be treated in the liquid asset section of LCR, in particular LCR DA Articles 7(2) and 8(2), e.g. in the case of Bank A giving Security 1 to Bank B in a secured lending transaction, but having the right to call the security back at any time.

Submission date
Final publishing date
Final answer
In an on demand secured lending transaction the lender or the borrower can terminate the contract on any day in the future. A notice period typically needs to be given in advance to the counterparty.As per Article 7(2)(b) of Delegated Regulation (EU) 2015/61 the bank that has received the securities (the cash lender, Bank B in the example) is the one which will compute it as liquid assets if they meet the criteria in Articles 7 and 8 of Delegated Regulation (EU) 2015/61 and belong to any category of assets of Chapter 2. The bank that has posted the securities (the cash borrower, Bank A in the example) will only compute them as liquid assets once it holds them after the termination of the contract (first paragraph of Article 7(2)) and if the criteria in Articles 7, 8 and Chapter 2 are met.
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.

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.