EBA says impact of liquidity coverage requirements for EU banks not likely to have adverse effects

The European Banking Authority (EBA) published today its impact assessment report for liquidity coverage requirements. Overall, this analysis points to improvements of EU banks' compliance with Liquidity Coverage Ratio (LCR) requirements and shows that the implementation of the LCR is not likely to have a negative impact on the stability of financial markets and of the supply of bank lending. The report is based on liquidity data provided by 322 European banks, covering about 2/3 of total banking assets in the EU, and it will inform EU policies aimed at strengthening the resilience of EU banks.

Overall, the analysis carried out by the EBA shows that the general liquidity requirement is not likely to have a material detrimental impact on the stability and orderly functioning of financial markets or on the economy and the stability of the supply of bank lending. To a large extent, this can be explained by the significant improvement, in terms of compliance, of EU banks with Liquidity Coverage Ratio (LCR) requirements; the potential for balance sheet adjustments to meet LCR requirements; the absence of supply constraints overall at country level due to redistribution of credit supply from non-compliant to compliant banks.

The EBA's analysis also concluded that the implementation of the envisaged Delegated Act by the EC will have a marked positive impact on the LCR of specialised credit institutions, such as factoring and leasing, auto and consumer credit banks and other specialised credit institutions which were identified in the EBA's first LCR IA report as being potentially detrimentally affected by the LCR.

This EBA analysis will serve as a basis for EU policy makers in their work on high quality securitisation in the EU banking sector, which, by ensuring banks have sufficient liquid assets, will ultimately strengthen their resilience.

Legal basis and next steps

The Report had been developed on the basis of Regulation 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR).

To this aim, the EBA has been mandated, to report to the European Commission as per Article 509 (1) of the CRR on the impact of the liquidity coverage requirement on the business and risk profile of institutions established in the Union, on the stability of financial markets, on the economy and on the stability of the supply of bank lending.