EBA updated report on monitoring of LCR and NSFR

The European Banking Authority (EBA) has published an updated report, together with a press release, on the monitoring of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) in the European Union. This report provides updated guidance following the March 2023 banking turmoil, which highlighted the need for enhanced supervision of liquidity aspects resulting from changes in interest rates and related trends in deposit behaviour and concentrations. Among other things, the report: (i) provides further clarification for the recognition in the LCR calculation of LCR inflows from open reverse repos without a maturity date within 30 days, following Q&A 2024_7053 (published on 3 May 2024). It builds on two approaches, the first of which builds on the occurrence of a trigger event to terminate the transaction, and the second one on historical experience; (ii) considers how recently, in some banks, operational deposits increased while excess operational deposits decreased, and how the interest rate environment changed. In this context, the Report supplements the guidance provided in the EBA's 2019 Report on identifying operational deposits, the characteristics of the operational deposit trade cycle, and the material penalty for retail term deposits; and (iii) includes an Addendum to the EBA's 2023 Report on interdependent assets and liabilities in the NSFR. It clarifies regulatory expectations regarding indirect client clearing activities, where affiliated institutions rather than an institutional protection scheme (IPS) structure–which is already covered in the 2023 Report– are involved. The EBA will continue monitoring some specific aspects of the LCR and NSFR due to current circumstances and interest rate environment to set out its observations and provide further guidance, where necessary. The EBA will also assess further the need to amend/complement the existing regulatory reporting on liquidity requirements.

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