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UniCredit Group

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As regards the new “of which” rows for secured funding and capital market driven transactions, the approach proposed in the Consultation Paper aims at identifing specific rows where the collateral, qualified as a liquid asset, meets the operational requirement under the Article 8.
Since the weigthing factor is reported on the row not showing the “of which” amount, with the new instruction figures contributing to the LCR calculation will be the ones which do not consider the disqualification of the underlying of secured funding is case of not fulfillment of Article 8 requirements.
The approach proposed in the CP creates an unbalance in term of liquidity transfer.

According to the new proposal, in case of a repo maturing within the next 30 days with underlying Level 1 where operational requirement is not fulfilled, we would have the following effects:
• the security is encumbered but it would not have been considered in the Buffer also in case of availability (positive net effect due to the increase of cash received);
• the outflow at maturity is not considered due to the original Level 1 status of underlying security (repo with Level 1 underlying has 0% weighting factor).

On the contrary, we think that the correct treatment is the current one where:
• the security is encumbered but it would not have been considered in the Buffer also in case of availability (positive net effect due to the increase of cash received);
• the outflow at maturity is actually considered due the disqualification of the underlying since the operational requirement is not fulfilled (repo with non-HQLA underlying has 100% weighting factor).

In order to guarantee liquidity balance, the positive net effect on Buffer should be off-set by a negative net effect on cash flows at maturity.
This means that the status of underlying should not change just depending on the purpose of the treatment (position for Buffer or underlying for cash flows).

Our proposal is to remove such change and keep the current calculation for LCR purposes based on the rows which consider the disqualification of the underlying since the operational requirement is not fulfilled.
As regards the new “of which” rows for secured lending and capital market driven transactions, the approach proposed in the Consultation Paper aims at identifing specific rows where the collateral, qualified as a liquid asset, meets the operational requirement under the Article 8.
Since the weigthing factor is reported on the row not showing the “of which” amount, with the new instruction figures contributing to the LCR calculation will be the ones which do not consider the disqualification of the underlying of secured funding is case of not fulfillment of Article 8 requirements.
The approach proposed in the CP creates an unbalance in term of liquidity transfer.

According to the new proposal, in case of a reverse repo maturing within the next 30 days with underlying Level 1 where operational requirement is not fulfilled, we would have the following effects:
• the security received is not considered in the Buffer (negative net effect due to the decrease of cash provided);
• the inflow at maturity is not considered due to the original Level 1 status of underlying security (reverse repo with Level 1 underlying has 0% weighting factor).

On the contrary, we think that the correct treatment is the current one where:
• the security received is not considered in the Buffer (negative net effect due to the decrease of cash provided);
• the inflow at maturity is actually considered due the disqualification of the underlying since the operational requirement is not fulfilled (reverse repo with non-HQLA underlying has 100% weighting factor).
In other words, the negative net effect on Buffer should be off-set by a positive net effect on cash flows at maturity, in order to guarantee liquidity balance.

This means that the status of underlying should not change just depending on the purpose of the treatment (position for Buffer or underlying for cash flows).

Our proposal is to remove such change and keep the current calculation for LCR purposes based on the rows which consider the disqualification of the underlying since the operational requirement is not fulfilled.
As regards the new “of which” rows for security lending/borrowing transactions, the approach proposed in the Consultation Paper aims at identifing specific rows where the collateral, qualified as a liquid asset, meets the operational requirement under the Article 8.
Since the weigthing factor is reported on the row not showing the “of which” amount, with the new instruction figures contributing to the LCR calculation will be the ones which do not consider the disqualification of the underlying of secured funding is case of not fulfillment of Article 8 requirements.
The approach proposed in the CP creates an unbalance in term of liquidity transfer.

In case of a security lending with maturity within the next 30 days with underlying Level 1 where operational requirement is not fulfilled, we would have the following effects:
• the security is encumbered but it would not have been considered in the Buffer also in case of availability (null effect);
• the inflow at maturity is actually considered due to the original Level 1 status of underlying security (security lending with Level 1 underlying has 100% weighting factor).

On the contrary, we think that the correct treatment is the current one where:
• the security is encumbered but it would not have been considered in the Buffer also in case of availability (null effect);
• the inflow at maturity is not considered due the disqualification of the underlying since the operational requirement is not fulfilled (security lending with non-HQLA underlying has 0% weighting factor).
In order to guarantee liquidity balance, the null effect on Buffer should be coherent with the null effect on cash flows at maturity.
Moreover, in case of a security borrowing with maturity within the next 30 days with underlying Level 1 where operational requirement is not fulfilled, we would have the following effects:
• the security received is not considered in the Buffer (null effect);
• the outflow at maturity is actually considered due to the original Level 1 status of underlying security (security borrowing with Level 1 underlying has 100% weighting factor).

On the contrary we think that the correct treatment is the current one where:
• the security is not considered in the Buffer (null effect);
• the outflow at maturity is not considered due the disqualification of the underlying since the operational requirement is not fulfilled (security borrowing with non-HQLA underlying has 0% weighting factor).
In order to guarantee liquidity balance, the null effect on Buffer should be coherent with the null effect on cash flows at maturity.

This means that the status of underlying should not change just depending on the purpose of the treatment (position for Buffer or underlying for cash flows).

Our proposal is to remove such change and keep the current calculation for LCR purposes based on the rows which consider the disqualification of the underlying since the operational requirement is not fulfilled.

As regards the “collateral swaps transactions”, the approach proposed in the Consultation Paper aims at separately identifying collateral swaps with domestic Central Banks from those with other counterparties.

According to the delegated regulation (EU) 2015/61 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions, in case of the counterparty is the credit institution’s domestic Central Bank, the outflow rate applied to the market value of the asset borrowed shall be 0%. This requirement is mentioned by the text adopted last July 13th.

Focusing on Annex I - C.75 template - example on panel 1.8 “Totals for transactions in which Non-liquid assets are lent and the following collateral is borrowed [from L1 excl. EHQ covered bond to Other Level 2B] for counterparty equal to domestic Central Bank”, the weighting factor applied is always equal to 100%. This leads to an outflow at maturity equal to the full Fair Value of the security borrowed, not refleting the favourable treatment mentioned in delegated regulation. On the contrary, by the reading of adopted amendment in delegated regulation, we would expect weighting factor always equal to 0%.

The review of the differential impact on inflow/outflow of maturing collateral swap transactions should be extended to the whole C.75 template, when the counterparty is a domestic Central Bank.

Our proposal is to change weighting factors for collateral swap transactions with Central Bank in order to reflect the favourable treatment mentioned in delegated regulation.
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