EBA欧洲银行-EBA-Opinion-on-macroprudential-measures-28EBA-Op-2017-1529_7页_218kb

EBA Opinion on Draft National Measures for Stricter Liquidity Requirements in Cyprus

Introduction and Legal Basis

The European Banking Authority (EBA) received a notification from the Central Bank of Cyprus (CBC) on 21 November 2017 regarding its intention to adopt stricter liquidity requirements under Article 458(2)(d)(v) of Regulation (EU) No 575/2013 (CRR). This measure is intended to address changes in the intensity of macroprudential or systemic risk that could threaten financial stability in Cyprus.

The EBA's competence to provide an opinion is based on Article 458(4)(2) of the CRR, which requires the EBA to assess and provide feedback on such national measures within one month of notification. The opinion was adopted by the Board of Supervisors in accordance with Article 14(5) of the EBA's rules of procedure.

Background on the Measure

The proposed measure involves tightening the liquidity coverage ratio (LCR) calculation by introducing stricter inflow and outflow rates, resulting in an add-on to the LCR requirements. These stricter rates will be applied in two stages:

• Stage 1 (1 January 2018 to 30 June 2018): Higher outflow and lower inflow rates.
• Stage 2 (1 July 2018 to 31 December 2018): Further adjustments to the rates.

The specific parameters for the LCR add-on are detailed in the annex, which includes lower inflow rates for assets with undefined contractual end dates and higher outflow rates for retail and other deposits. These changes aim to supplement the fully phased-in LCR requirements over a one-year period.

The measure applies to all domestically authorised credit institutions in Cyprus, except one, which is already subject to stricter liquidity requirements under the fully phased-in LCR.

Economic Rationale for the Measure

The EBA acknowledges the rationale behind the measure, which is to ensure the gradual release of excess liquidity that will become available when the fully phased-in LCR comes into effect on 1 January 2018. This excess liquidity, estimated at EUR 4 billion, is equivalent to 22% of Cyprus' annual GDP.

The CBC highlights that Cypriot credit institutions are heavily reliant on short-term funding, which increases liquidity risk. The immediate release of this excess liquidity could lead to increased risk-taking in lending and investment decisions, potentially undermining the resilience of the financial system.

The gradual release of liquidity is intended to allow the CBC to monitor macroprudential risks and assess the sustainability of business models over the 12-month period. The EBA supports this approach as it is seen as suitable and effective for addressing the situation.

Rationale for Not Using Alternative Measures

The CBC chose to apply Article 458 of the CRR instead of the macroprudential tools in Directive 2013/36/EU (CRD), specifically Articles 103, 104, and 105. The rationale includes:

• Lack of additional general liquidity charges in the current SREP framework.
• Less transparency in Articles 103 and 104 of the CRD compared to Article 458(2)(d)(v) of the CRR.
• Article 105 of the CRD is not suitable for addressing the issue of excess liquidity, as it is not institution-specific.
• Responsibility distribution under Regulation (EU) No 1024/2013 may limit the use of CRD tools for significant institutions, and the CBC argues that the ECB may not be able to act quickly enough.

Assessment and Conclusions

The EBA supports the CBC's decision to implement the proposed measure, as it addresses the potential threat to financial stability from the sudden release of excess liquidity. It acknowledges the transitory nature of the measure and the limited negative impact on the internal market.

However, the EBA notes that the calibration of the specific parameters in the annex is not fully explained and questions whether a simpler or alternative measure could have achieved the same outcome. It also highlights the potential for reduced transparency if the LCR is calculated differently across institutions, which could affect comparability and signaling.

The EBA further observes that the application of Pillar 2 measures could have been an alternative, but it is not clear whether this would have been more effective. It also notes that an earlier phasing out of national liquidity requirements could have been considered to anticipate the LCR's full implementation.

This is the first case in which a national designated authority has used Article 458 of the CRR to set stricter liquidity requirements. The EBA acknowledges the uncertainties around this provision and does not preclude future assessments of similar measures.

Annex: Calibration of LCR Add-on

The EBA also notes that the current national liquidity requirements allow for 100% inclusion of interbank placements with maturity up to 30 days in the LCR calculation. The LCR add-on will maintain this flexibility, as it allows for the inclusion of inflows exempted due to the 75% cap in the LCR calculation.

Final Remarks

This opinion will be published on the EBA's website. The EBA does not object to the proposed measure but recommends further clarification on the rationale and calibration of the LCR add-on to ensure transparency and effectiveness.