EBA consults on the process to define highly liquid assets in the Liquidity Coverage Ratio (LCR)

The EBA issues today a discussion paper presenting the methodology and scope of its forthcoming analysis on definitions of highly liquid assets. The proposed methodology is based on a scorecard, which aims at producing an ordinal ranking of assets by combining a set of different liquidity indicators. Following the outcome of the analysis, the EBA will report to the European Commission on appropriate definitions of high and extremely high liquidity and credit quality of transferable assets for the purpose of the LCR.

In this paper, the EBA sets out, for discussion, the steps it intends to follow in performing its analysis. The first step will involve the assessment of a range of asset classes against the fundamental definitions of liquid assets included in the draft Capital Requirements Regulation (CRR). A detailed quantitative assessment of the liquidity of individual assets will then be performed, with the objective of producing a ranking of the relative liquidity of the different asset classes. Finally, the analysis will identify the features that are of particular importance to market liquidity. The objective of this last step is to provide definitions of the characteristics assets should have to be qualified as highly, or extremely highly liquid.

The draft CRR text stipulates that the EU Commission will adopt a delegated act by 30 June 2014 to implement the LCR in EU regulation. The EBA is mandated to report in the second half of 2013 to the EU Commission on appropriate uniform definitions of high and of extremely high liquidity and credit quality of transferable assets and appropriate haircuts.

The discussion paper takes into account the latest developments regarding the LCR and liquid assets requirements, both at international and European levels.

The EBA also publishes today a Discussion Paper on retail deposits subject to higher outflows for the purposes of liquidity reporting under the CRR which objective is to define the characteristics of retail deposits that can lead to higher outflows and to provide a methodology for calculating higher outflow rates.