Liquidity coverage ratio

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The liquidity coverage ratio , especially in Switzerland and liquidity ratio (English liquidity coverage ratio , abbreviated LCR) is in the wake of Basel III established measure for assessing the short-term liquidity risk of banks . The term minimum liquidity ratio, originally used by the Bank for International Settlements (BIS) in 2010, is misleading as it implicitly includes a claim to the level of the ratio.

The Liquidity Ratio LCR is the ratio of the inventory of assets classified as prime to the total net outflow over the next 30 days:

The LCR is to be determined using a stress scenario specified by Basel III . The LCR must be 100% or more to meet the standard.

The purpose of this standard is to ensure that a credit institution has a sufficient inventory of unencumbered, high quality liquid assets that can be converted into cash to meet liquidity needs for at least 30 calendar days, even in the most adverse circumstances. This period is intended to enable management or banking supervisors to decide on appropriate longer-term measures. The term first class has not yet been defined. When determining the net outflows, contractual cash inflows, e.g. B. from interest and repayments extended loans, from securities due or from daily due nostro accounts at other banks, from the contractual cash outflows, z. B. from short-term deposits or own issues due within 30 days, deducted. Due to the inflow cap, which i. d. Usually 75%, only 75% of the outflows are counted as inflows. Thus i. d. As a rule, always keeping 25% of the cash outflows through highly liquid assets.

The so-called “observation phase” began in 2011 for this international standard. On October 1, 2015, this standard became binding in the European Union through the publication of the Commission Delegated Regulation (EU) 2015/61 of October 10, 2014 to supplement Regulation (EU) No. 575/2013 of the European Parliament (CRR, Capital Requirements Regulation) introduced. However, the minimum requirement was gradually increased, so that an LCR of 100% at all times from all European banks has only been implemented since January 1, 2018. H. daily, must be achieved.

In addition to the LCR liquidity ratio , Basel III and, at European level, the CRR establish a second standard, the structural liquidity ratio (in Switzerland also the financing ratio ; English net stable funding ratio , abbreviated NSFR). The latter refers to a longer time horizon at one year and is intended to ensure a sustainable maturity structure for assets and liabilities.

Stress scenario

The LCR's given stress scenario is intended to include many of the extreme situations that were recorded during the crisis that began in 2007 . It contains both case-by-case and market-wide shocks of the following types:

  • Deduction of part of the deposits of private customers
  • Partial loss of the possibility of unsecured refinancing on the capital market
  • Partial loss of secured short-term funding with certain collateral and counterparties
  • Additional contractual outflows as a result of a bank's rating being downgraded by up to three notches, including collateral requirements
  • Increase in market volatility with an impact on the quality of collateral or the future value of derivative positions
  • Unplanned use of committed but not yet drawn credit and liquidity facilities
  • To reduce reputational risk, the bank may need to buy back debt or honor non-contractual obligations

This stress test is to be seen as a minimum regulatory requirement for banks. The banks also have to conduct their own stress tests to determine the level of liquidity. Such internal stress tests should include longer time horizons; the results must be reported to the supervisory authority.

Criteria for high quality liquid assets

Assets are said to be high quality and liquid if they can be converted into cash immediately, even during periods of stress, with little or no loss of value. In most countries, high quality liquid assets should also be eligible ; this criterion is not necessary in Europe for LCR eligibility. Two categories are defined for the first-class liquid assets:

  • Level 1: This involves cash, central bank balances that are also available in times of stress, as well as marketable securities that represent claims on governments, central banks or similar liquid bodies and also meet special requirements.
  • Level 2: This includes marketable securities that meet somewhat less stringent criteria, as well as corporate bonds and covered bonds that also meet special conditions.

While assets that meet the requirements of the first level can be counted as first-class assets without a discount, a discount of at least 15% to the current market value must be applied for assets of the second category. Furthermore, assets in the second category may only make up 40% of the total portfolio.

literature

  • Basel Committee on Banking Supervision: Basel III: International framework agreement on measurement, standards and monitoring of liquidity risk . Ed .: Bank for International Settlements. 2010, ISBN 92-9131-331-9 ( bis.org [PDF; 349 kB ; accessed on December 25, 2018]).

Individual evidence

  1. ↑ Regulation (EU) 2015/61 to supplement Regulation (EU) No. 575/2013 of the European Parliament and of the Council with regard to the liquidity coverage requirement for credit institutions , accessed on December 15, 2018 .
  2. ↑ Regulation (EU) 2016/322 amending Implementing Regulation (EU) No. 680/2014 laying down technical implementation standards for supervisory reports from institutions with regard to the liquidity coverage requirement , accessed on December 15, 2018 .
  3. ↑ a b FINMA opens a hearing on the partial revision of the circular “Banks liquidity risks”. January 10, 2017, accessed November 9, 2018 .
  4. ↑ FINMA publishes the partially revised circular “Liquidity Risks - Banks”. December 15, 2017. Retrieved November 9, 2018 .
  5. ↑ Basel Committee on Banking Supervision: Basel III: International framework agreement on measurement, standards and monitoring of liquidity risk . Ed .: Bank for International Settlements. 2010, ISBN 92-9131-331-9 ( bis.org [PDF; 349 kB ; accessed on December 25, 2018]).
  6. ↑ http://www.bafin.de/DE/Aufsicht/BankenFinanzdienstleister/Liquiditaetslösungen/liquiditaetslösungen_node.html