The European Banking Authority (EBA) published today its third impact assessment Report for the liquidity coverage ratio (LCR), together with a review of its phasing-in period. The Report shows a constant improvement of the average LCR across EU banks since 2011. At the reporting date of 31 December 2015, EU banks' average LCR was significantly above the 100% minimum requirement, which will have to be fully implemented by January 2018, and no strong evidence was found suggesting that the EBA should recommend an extension of the phasing-in period of the LCR. The Report, which is based on liquidity data from 194 EU banks across 17 Member States, is the first publication after the implementation of the minimum binding standards in 2015 and accounts for the provisions of the Commission's Delegated Regulation on the LCR.
The Report shows that as of end-December 2015, EU banks' average LCR was 134% and the aggregate gross shortfall amounted to EUR 10.9 billion. The increase in the LCR can be mainly attributed to an increase in liquid assets, which, since June 2011, have almost doubled. In contrast, net cash outflows have remained relatively stable. In addition, the Report shows that, on average, banks in various business models reach the 100% minimum requirement, despite large dispersions amongst them.
The Report also provides a quantitative analysis on the comparison between the LCR under the Commission's Delegated Regulation and the LCR under the Basel III framework. Overall, the findings show that, under the Delegated Regulation, smaller banks (Group 2 banks) and specialised credit institutions, such as automotive and consumer credit banks, benefit from the EU-specific rules, while the average LCR for large cross-border universal banks (Group 1 banks) is lower with respect to the Basel III framework.
The Report further analyses operations with central banks and identifies, in particular, the importance of central bank exposures in banks' liquidity buffers for their compliance with the LCR regulation. The Report also finds evidence for liquidity mismatch in the liquidity coverage requirements of the banks with activities in significant currencies. For a large number of these banks, while the LCR is above the 100% threshold in reporting currency, it is below this threshold in USD, one of the significant foreign currencies considered for the analysis.
Legal basis and background
This Report has been drafted in accordance with Article 509(1) of the Capital Requirements Regulation (CRR), which mandates the EBA to monitor and evaluate the liquidity measures and their impact on the EU banking sector on an annual basis. Article 461 of the CRR also mandates the EBA to review the phasing-in of the liquidity coverage requirement.
Due to complementary and overlapping aspects of the two assessments, after an agreement with the European Commission, the EBA has decided to deliver a merged report.