EBA欧洲银行-EBA-ITS-2014-01-28ITS-on-currencies-with-liquid-assets-shortage29_41页_898kb

EBA Final Implementing Technical Standards on Currencies with Constraints on Liquid Asset Availability

Core Content

The European Banking Authority (EBA) has developed a final draft Implementing Technical Standard (ITS) under Article 419(4) of Regulation (EU) No 575/2013 (CRR) to address currencies where the justified demand for liquid assets exceeds their availability. This standard is part of the "single rule book" aimed at enhancing regulatory harmonization across the European Union.

The ITS identifies currencies where the liquidity coverage ratio (LCR) requirements under Article 412 of the CRR create a shortfall in the supply of high-quality liquid assets (HQLA). In such cases, derogations are allowed under Article 419(2) of the CRR, which may include the use of central bank credit lines or adjustments in the currency distribution of liquidity net outflows. The EBA has also developed a Regulatory Technical Standard (RTS) under Article 419(5) of the CRR to specify the conditions and usage limits of these derogations.

Main Features of the ITS

• Currencies with Constraints: The EBA has identified the Norwegian Krone (NOK) and the Danish Krone (DKK) as currencies with constraints on the availability of liquid assets.
• Derogations: These apply to institutions where the demand for liquid assets in a specific currency exceeds the supply, and they allow for alternative treatments such as the use of central bank credit lines.
• Usage Limits: The RTS specifies that the use of derogations should be inversely proportional to the availability of liquid assets, with usage limits equal to the estimated shortfall percentage.

Key Currencies Identified

Norwegian Krone (NOK)

• Government Debt: Outstanding amount in September 2012 was approximately NOK 500 billion.
• Covered Bonds: Amounted to NOK 400 billion, but due to limited trading activity, they are not considered liquid.
• Equity Market: Market cap of around NOK 1200 billion, with a significant portion locked up by large investors.
• Supply of Liquid Assets: Estimated at 62% of the aggregate demand, leading to a shortfall of 38% without a buffer.
• With Buffer: Shortfall increases to 63%.
• Data Sources: Includes voluntary reporting and BIS Quantitative Impact Study data.

Danish Krone (DKK)

• Government Debt: Outstanding amount in September 2012 was approximately DKK 850 billion.
• Covered Bonds: Total outstanding of around DKK 2500 billion, with over DKK 2100 billion AAA-rated.
• Equity Market: Market cap of around DKK 1000 billion, with a tradable portion of DKK 700 billion.
• Supply of Liquid Assets: Estimated at 98% of the aggregate demand, leading to a shortfall of 2% without a buffer.
• With Buffer: Shortfall increases to 27%.
• Data Sources: Includes liquidity reporting and BIS data, with significant holdings by the pension and insurance sector.

Methodology

The EBA uses a formula to determine whether a currency faces constraints on the availability of liquid assets:

$$
A < D + B
$$

Where:

• A = Availability of HQLA to institutions
• D = Total demand for liquid assets from institutions under the LCR
• B = Buffer (25% of demand) to ensure market liquidity

Availability of HQLA is calculated as:

$$
A = \sum A(i) = \sum \sum (O(i) - L(i,j))
$$

Where:

• O(i) = Outstanding amount of asset i
• L(i,j) = Amount of asset i locked up by sector j

Sensitivity Analysis

• NOK: Ratios of available liquid assets to demand range from 47% to 83% in general scenarios. Specific scenarios, such as including more liquid assets or adjusting caps, can increase the ratio.
• DKK: Ratios fluctuate between 74% and 133%. The sensitivity is high due to the significant role of the covered bond market and the pension and insurance sector.
• Buffer Impact: The buffer of 25% significantly affects the shortfall percentage, highlighting the need for regular reassessment.

Data Collection Process

• Supply Data: Collected from Member States using the Basel definition of HQLA.
• Demand Data: Estimated as weighted net cash outflows over 30 days, considering the inflow cap.
• Non-CRR Regulated Entities: Their holdings of liquid assets are reported as price-inelastic and stable.
• Non-EEA Currencies: Not included due to data availability and the preference to use local assessments.

EBA's Response to Consultation

• The EBA received feedback from stakeholders and conducted an analysis.
• It concluded that no changes should be made to the draft ITS.
• The ITS was submitted to the European Commission for further implementation.

Future Updates

• The EBA will update the ITS whenever significant changes in supply or demand occur.
• Updates will also consider new currencies where data collection is completed.
• The analysis will be repeated after the European Commission finalizes the calibration of the LCR via a delegated act.

Conclusion

The EBA's ITS provides a framework for addressing liquidity constraints in specific currencies, ensuring that institutions can meet their LCR requirements through appropriate derogations. The standards are based on comprehensive data collection and analysis, with a focus on maintaining market liquidity and resilience. Regular updates are planned to reflect changes in the financial landscape and regulatory definitions.