EBA欧洲银行-EBA-ITS-2014-02-28ITS-on-currencies-with-extremely-narrow-CB-Eligibility29_19页_731kb

Summary of EBA Final Draft Implementing Technical Standards on Currencies with an Extremely Narrow Definition of Central Bank Eligibility

Core Content

The European Banking Authority (EBA) has developed a final draft Implementing Technical Standard (ITS) under Article 416(5) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR). This standard addresses the issue of liquidity coverage ratio (LCR) requirements for currencies where central bank eligibility is extremely narrow.

The LCR is a prudential requirement aimed at ensuring that banks hold sufficient high-quality liquid assets (HQLA) to cover net cash outflows over a 30-day stress period. Normally, these assets must be eligible for central bank refinancing. However, for currencies with an extremely narrow central bank eligibility, this condition is relaxed, allowing institutions to use non-eligible collateral if it is otherwise liquid.

The EBA defines an extremely narrow central bank eligibility as one where only central government debt or debt issued by the central bank is considered eligible. This standard is designed to ensure that institutions can still meet their LCR requirements even in such cases, by allowing the use of non-eligible assets that are still liquid.

Main Features of the ITS

• Definition of Extremely Narrow Eligibility: Only currencies where central bank eligibility is limited to central government debt or central bank debt are considered to have an extremely narrow definition.
• Derogation Rule: For these currencies, Article 416(3)(d) of the CRR does not apply, allowing institutions to report non-eligible assets as liquid assets if they are otherwise liquid.
• Currency Identified: The Bulgarian Lev (BGN) is the only currency identified as having an extremely narrow central bank eligibility.
• Data Collection: The EBA gathered data from Member States on eligible collateral for central bank operations. This revealed that while most central banks allow a wide range of assets, the BGN is an exception.
• Non-EEA Currencies: Non-EEA currencies were not evaluated due to data availability issues. The EBA prefers to assess them based on the criteria established by their respective jurisdictions.

Key Information

• CRR Context: The CRR requires institutions to hold sufficient HQLA to meet liquidity needs. Article 416(3)(d) normally mandates that these assets be eligible for central bank refinancing.
• Impact Assessment: The EBA conducted a cost-benefit analysis and found that the impact of the ITS is minimal. Only a small number of institutions operate in the BGN, and their assets represent a small share of the EEA banking sector's total assets.
• Benefits: The ITS ensures a consistent methodology for identifying currencies with narrow eligibility, and allows institutions to use derogations where necessary without impeding financial market liquidity.
• Public Consultation: A two-month consultation period was held, during which ten responses were received, six of which were published. However, no amendments were made to the draft ITS based on the feedback.

EBA's Response to Key Issues

• General Comments: Some respondents suggested broadening the definition of 'extremely narrow central bank eligibility' to include currencies like the Czech Koruna (CZK) and Romanian Leu (RON). However, the EBA maintains that such currencies do not meet the criteria for extremely narrow eligibility, as they still allow a range of liquid assets, including supranational debt.
• Analysis of Consultation Responses: The EBA found no compelling reasons to change its definition of extremely narrow eligibility. It concluded that the current framework is sufficient and that the derogation applies only where necessary.

Conclusion

The EBA's final draft ITS provides a clear and consistent approach to identifying currencies with an extremely narrow definition of central bank eligibility. It ensures that institutions can still meet their liquidity requirements in such currencies by allowing the use of non-eligible collateral that is otherwise liquid. The Bulgarian Lev is the only currency identified under this framework. The EBA has submitted the draft to the European Commission for adoption.