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  1. Home
  2. Single Rulebook Q&A
  3. 2022_6608 LCR treatment of letters of credit backed by deposits and letters of credit backed by committed lines
Question ID
2022_6608
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Liquidity risk
Article
460
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
Article/Paragraph
23
Type of submitter
Competent authority
Subject matter
LCR treatment of letters of credit backed by deposits and letters of credit backed by committed lines
Question

What is the LCR treatment of (i) letters of credit backed by deposits and (ii) letters of credit backed by committed lines?

Background on the question

In the concrete case, a credit institution has issued two letters of credit:

  1. a letter of credit effectively covered by deposits where the amount of deposits available shall effectively cover the disbursement of the letters of credit; and

  1. a letter of credit effectively covered by committed lines where the disbursement of the letters of credit would be done by drawing down the facilities.

The question is if the individual products (letter of credit, deposit and committed credit facility) would need to be considered as separate items in the LCR calculation or if they could be seen as combined products (letter of credit collateralized by a deposit, letter of credit collateralized by a committed facility) and, if yes, how to consider such combined products for the purpose of the LCR. At inception (which is the date of issue of the L/C) the bank blocks the limit with the gross amount of the L/C.

At a later point in time (dependent on shipping period) the documents will be provided to the bank, they are verified and accepted. In rare cases the bank clarifies open issues or rejects the documents. Apart from the full rejection of documents the bank pays out the agreed L/C volume to the correspondent bank (bank of the exporter).

Submission date
11/10/2022
Rejected publishing date
27/01/2023
Rationale for rejection

This question has been rejected because the matter it refers to has been answered in Q&A 2016_2828.

Status
Rejected question

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