Articles 428 r, s, w, y, aa, ab, ac, ae of Regulation (EU) No 575/2013 (covering all potential % of stable funding factors applicable to CIUs from 0% to 55%) state that “unencumbered shares or units in CIUs that are eligible for a [55 %] haircut for the calculation of the liquidity coverage ratio in accordance with the delegated act referred to in Article 460(1) shall be subject to a [55 %] required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act”.

Part of these operational requirements and the requirements on the composition of the liquidity buffer, are outlined in the following articles of the LCR delegated act:

• Article 8 of the LCR delegated act 2015/61 which covers the general operational requirements on the composition of the liquidity buffer;
• Article 17 of the LCR delegated act 2015/61 “Composition of the liquidity buffer by asset level” which describes the generic threshold requirements regarding the split of assets by liquidity level (e.g., minimum 60% for Level-1 assets, maximum 15% for Level-2B assets).

In addition, in the list of Q&A published in February 2017 (“Basel III – The Net Funding Ratio: frequently asked questions”), the Basel Committee on Banking Supervision decorrelates clearly the LCR treatment of assets issued in a foreign currency limited to this currency’s net capital outflows and the NSFR treatment of these same assets.

“Question: Should sovereign bonds issued in foreign currencies that are excluded from HQLA according to LCR standard paragraph 50(e) get the treatment of HQLA in the NSFR? (This question applies to those sovereign or central bank debt securities issued in foreign currencies which are not computable given that their amount exceeds the bank’s stressed net cash outflows in that currency and country.) 

Answer: Yes, the total amount of these securities can be treated as Level 1 and assigned to the corresponding bucket. “

This Q&A demonstrates that the requirements on the composition of the liquidity buffer go beyond article 17 of the LCR delegated act 2015/61, as it references a constraint stated in article 10.1(d) of the LCR delegated act.

In particular, article 15.1 of the LCR delegated act 2015/61 which provides that “shares or units in CIUs shall qualify as liquid assets of the same level as the liquid assets underlying the relevant undertaking up to an absolute amount of EUR 500 million (or equivalent amount in domestic currency) for each credit institution on an individual basis” should be considered as a requirement pertaining to the composition of the liquidity buffer specific to CIUs.