PRU A10.2 PRU A10.2 The Liquidity Coverage Ratio
Guidance1. The objective of the LCR is to promote short-term resilience of an Authorised Person's Liquidity Risk profile. The LCR aims to ensure that an Authorised Person maintains an adequate level of unencumbered HQLA that can be converted into cash to meet its liquidity needs for a 30 calendar day period under a severe liquidity stress scenario.2. The LCR is calculated under Rule 9.3.5 using the following formula:
LCR = Value of stock of HQLA / Total Net Cash Outflows over the next 30 calendar days3. The LCR has two components:a. Value of the stock of HQLA in stressed conditions; andb. Total Net Cash Outflows, calculated according to the scenario parameters outlined in this section.4. The stress scenario entails both institution-specific and systemic shocks including:a. the run-off of a proportion of retail Deposits;b. a partial loss of unsecured wholesale funding capacity;c. a partial loss of secured, short-term financing with certain Collateral and Counterparties;d. additional contractual outflows that would arise from a downgrade in the Authorised Person's public credit rating, where applicable, by up to and including three notches, including Collateral posting requirements;e. increases in market volatility that affect the quality of Collateral or potential future Exposure of Derivative positions and so require larger Collateral haircuts or additional Collateral, or lead to other liquidity needs;f. unscheduled draws on committed but unused credit and liquidity facilities that the Authorised Person has provided to its clients; andg. the potential need for the Authorised Person to buy back debt or honour non-contractual obligations to mitigate reputational risk.
PRU A10.2.1 PRU A10.2.1
An Authorised Person must calculate its LCR on an ongoing basis and separately for each significant currency. An Authorised Person must report to the Regulator its aggregate LCR calculation in $USD.
A currency is considered significant if the aggregate liabilities denominated in that currency amount to 5% or more of the Authorised Person's total liabilities.
High Quality Liquid Assets (HQLA)
Assets that meet the conditions in Rules A9.2.2 to A9.2.9 are considered to be HQLA. Those assets are considered to be HQLA as they can be converted easily and immediately into cash at little or no loss of value. To qualify as HQLA, assets should be liquid in markets during a time of stress. In determining whether or not the market for an asset can be relied upon to raise liquidity during a time of stress, the following factors should be taken into account:1. fundamental characteristics, for example:a. low risk: high credit standing of the Issuer and a low degree of subordination, low duration, low legal risk, low inflation risk, denomination in a convertible currency with low foreign exchange risk;b. ease and certainty of valuation;c. low correlation with risky assets, not subject to wrong-way risk; andd. listing on a developed and recognised exchange.2. market-related characteristics, for example:a. active and sizeable market, including active outright sale or repo markets at all times. This can be demonstrated through:i. historical evidence of market breadth and market depth (low bid-ask spreads, high trading volumes, large and diverse number of market participants); orii. existence of robust market infrastructure (presence of multiple committed market makers);b. low price volatility, including historical evidence of relative stability of market terms (e.g. prices and haircuts) and volumes during stressed periods; orc. 'flight to quality', i.e. that historically the market has shown a tendency to move into these types of high quality assets in a systemic crisis.
HQLA — general operational requirements
To be eligible as HQLA, assets in the portfolio of HQLA must be appropriately diversified in terms of type of assets, type of Issuer and specific Counterparty or Issuer.
To be eligible as HQLA, assets must meet the following requirements:(a) the assets must be under the control of the specific function or functions charged with managing the liquidity of the Authorised Person which must have the continuous authority and legal and operational capability to liquidate any asset in the stock; and(b) a representative portion of the assets in the stock of HQLA must be liquidated periodically and at least annually by the Authorised Person to test its access to the market, the effectiveness of its processes for liquidation, the availability of the assets, and to minimise the risk of negative signalling during a period of actual stress.
PRU A10.2.4 PRU A10.2.4
To be eligible as HQLA, an asset must also meet the following requirements:(a) the asset must be unencumbered and free of legal, regulatory, contractual or other restrictions that affect the ability of the Authorised Person to liquidate, sell, transfer, or assign the asset;(b) the asset must not be pledged, either explicitly or implicitly, to secure, collateralise or credit-enhance any transaction, nor be designated to cover operational costs (such as rents and salaries); and(c) an asset received in a reverse repo or Securities Financing Transactions that is held at the Authorised Person, is eligible for inclusion in the stock of HQLA only if the asset has not been rehypothecated and is legally and contractually available for the Authorised Person's use.
Guidance1. The requirements in Rules A10.2.2 to A10.2.4 are intended to ensure that the stock of HQLA is managed in such a way that the Authorised Person can, and is able to demonstrate that it can, immediately use the assets as a source of contingent funds that is available to convert into cash to fill funding gaps between cash inflows and outflows at any time during the 30-day stress period, with no restriction on the use of the liquidity generated.2. Under Rule A10.2.3(a), the control of the HQLA may be evidenced either by:a. maintaining assets in a separate pool managed by the identified liquidity management function (typically the treasurer) with the sole intent to use it as a source of contingent funds; orb. demonstrating that the relevant function can liquidate the asset at any point in the 30-day stress period and that the proceeds are available to the function throughout the 30-day stress period without directly conflicting with a stated business or risk management strategy.3. Operational capability to liquidate assets referred to in Rule A10.2.3(b), requires procedures and appropriate systems to be in place. This includes providing the liquidity management function with access to all necessary information to liquidate any asset at any time. Liquidation of the asset should be executable operationally within the standard settlement period for the asset class in the relevant jurisdiction.
Caps on different types of HQLA
PRU A10.2.5 PRU A10.2.5(1) Assets eligible to be included in the stock of HQLA for the purpose of the LCR calculation are classified under the following two categories:(a) Level 1 HQLA, consisting of the highest quality and most liquid assets; and(b) Level 2 HQLA, including Level 2A HQLA and Level 2B HQLA, consisting of other High Quality Liquid Assets.(2) When calculating the total stock of HQLA, an Authorised Person must apply the following caps in respect of each category of assets:(a) Level 1 HQLA can be included in the total stock of HQLA without any limit (i.e. up to 100% of HQLA);(b) Total Level 2 HQLA, including both Level 2A HQLA and Level 2B HQLA, can comprise only up to 40% of the total stock of HQLA; and(c) Level 2B HQLA can comprise only up to 15% of the total stock of HQLA within the overall 40% limit on Level 2 HQLA in (b).(3) The caps on Level 2 HQLA and Level 2B HQLA must be determined after applying the haircuts required under Rules A9.2.7 and A9.2.8, and after unwinding the amounts of HQLA involved in short-term secured funding, secured lending and Collateral swap transactions maturing within 30 calendar days that involve the exchange of HQLA.(4) The assets to be included in each category of HQLA must be restricted to assets being held or owned by the Authorised Person on the first day of the stress period, irrespective of their residual maturity.
Guidance1. The following Guidance is intended to illustrate how Rule A10.2.5 should be applied in practice.2. Under Rule A10.2.5(3) the adjusted amounts of HQLA should be calculated as the amount of HQLA that would result after unwinding those short-term secured funding, secured lending and Collateral swap transactions that involve the exchange of any HQLA for any other HQLA.3. The calculation of the stock of HQLA under Rule A10.2.5 can be expressed as the following formula:Stock of HQLA = Level 1 HQLA + Level 2A HQLA + Level 2B HQLA – Adjustment for 15% cap – Adjustment for 40% capWhere:a. Adjustment for 15% cap = Max (Adjusted Level 2B HQLA – 15/85 x(Adjusted Level 1 HQLA + Level 2A HQLA), Adjusted Level 2B HQLA - 15/60 x Adjusted Level 1 HQLA, 0)b. Adjustment for 40% cap = Max ((Adjusted Level 2A HQLA + Adjusted Level 2B HQLA – Adjustment for 15% cap) - 2/3 x Adjusted Level 1 HQLA, 0)
Level 1 HQLA
PRU A10.2.6(1) Level 1 HQLA must be valued at market value.(2) Level 1 HQLA consists of:(a) banknotes and coin;(b) central bank reserves, to the extent that such reserves are capable of being drawn down immediately in times of stress;(c) marketable Securities representing claims on or claims guaranteed by sovereigns, central banks, Public Sector Entities (PSEs), the Bank for International Settlements, the International Monetary Fund, the European Central Bank and European Commission or Multilateral Development Banks (MDBs), and that satisfy all of the following conditions:(ii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration;(iii) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions; and(iv) they are not an obligation of a Financial Institution or any of its associated entities;(d) in the case of sovereigns that are not eligible for a risk-weight of zero, sovereign, or central bank debt Securities issued in domestic currencies by the sovereign or central bank in the country in which the Liquidity Risk is being taken or in the Authorised Person's home jurisdiction, where those Securities satisfy all of the conditions in paragraph (c) (ii)(iii) and (iv);(e) in the case of sovereigns that are not eligible for a risk-weight of zero, domestic sovereign or central bank debt Securities issued in foreign currencies, up to the amount of the Authorised Person's stressed net cash outflows in that specific foreign currency stemming from the Authorised Person's operations in the jurisdiction where the Authorised Person's Liquidity Risk is being taken, where those Securities satisfy all of the conditions in paragraph (c) (ii)(iii) and (iv); and(f) any other types of assets approved by the Regulator under Rule A10.2.9 as being eligible to be Level 1 HQLA.
Level 2A HQLA
PRU A10.2.7(1) Level 2A HQLA must be valued at market value and subject to a 15% haircut.(2) Level 2A HQLA consists of:(a) marketable Securities representing claims on or guaranteed by sovereigns, central banks, PSEs or MDBs that satisfy all of the following conditions:(ii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration;(iii) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 10%); and(iv) they are not an obligation of a Financial Institution or any of its associated entities;(b) corporate debt Securities (including commercial paper) and covered bonds that satisfy all of the following conditions:(i) in the case of corporate debt Securities: they must not be issued by a Financial Institution or any of its associated entities and must include only plain vanilla assets (i.e. not include complex Structured Products or subordinated debt) whose valuation is readily available based on standard methods and does not depend on private knowledge;(ii) in the case of covered bonds: they must not be issued by the Authorised Person itself or any of its associated entities;(iii) the assets must have a Credit Quality Grade of 1, or if the assets do not have a credit assessment by a recognised ECAI, they must be internally rated as having a probability of default (PD) corresponding to a Credit Quality Grade of 1;(iv) they must be traded in large, deep and active repo or cash markets characterised by a low level of concentration; and(v) they must have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 10%); and(c) any other types of assets approved by the Regulator under Rule A10.2.9 as being eligible to be Level 2A HQLA.
Level 2B HQLA
PRU A10.2.8(1) Level 2B HQLA must be valued at market value and subject to an appropriate haircut, as specified in (2), for each type of asset.(2) Level 2B HQLA consists of:(a) residential mortgage-backed Securities that satisfy all of the following conditions, subject to a 25% haircut:(i) they are not issued by, and the underlying assets have not been originated by, the Authorised Person itself or any of its affiliated entities;(ii) they have a Credit Quality Grade of 1;(iii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration;(iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 20%);(v) the underlying asset pool is restricted to residential mortgages and does not contain Structured Products;(vi) the underlying mortgages are "full recourse'' loans (i.e. in the case of foreclosure the mortgage owner remains liable for any shortfall in sales proceeds from the property) and have a maximum loan-to-value ratio (LTV) of 80% on average at issuance; and(vii) the securitisations are subject to "risk retention" regulations which require Issuers to retain an interest in the assets they securitise;(b) corporate debt Securities (including commercial paper) that satisfy all of the following conditions, subject to a 50% haircut:(i) they are not issued by a Financial Institution or any of its affiliated entities;(ii) they have a Credit Quality Grade of 2 or 3 or, in the case the assets do not have a credit assessment by a recognised ECAI, are internally rated as having a probability of default (PD) corresponding to a Credit Quality Grade of 2 or 3;(iii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration; and(iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 20%);(c) equity Shares that satisfy all of the following conditions, subject to a 50% haircut:(i) they are not issued by a Financial Institution or any of its affiliated entities;(ii) they are exchange-traded and centrally cleared;(iii) they are a constituent of the major stock index in the home jurisdiction, or where the Liquidity Risk is taken, as decided by the supervisor in the jurisdiction where the index is located;(iv) they are denominated in the domestic currency of an Authorised Person's home jurisdiction or in the currency of the jurisdiction where an Authorised Person's Liquidity Risk is taken;(v) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration; and(vi) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 40%); and(d) any other types of assets approved by the Regulator under Rule A10.2.9 as being eligible to be Level 2B HQLA.
Approval of other types of HQLA
PRU A10.2.9 PRU A10.2.9(1) The Regulator may approve other types of assets (in addition to those specified in Rules A10.2.6 to A10.2.8) as being eligible to be included in the stock of HQLA for the purposes of the calculation of the LCR.(2) If the Regulator approves assets under (1), it must specify whether they are to be classified as Level 1 HQLA or Level 2 HQLA and the haircut, if any, to be applied to them.
The Regulator may use its discretion under Rule A10.2.9 to approve other types of assets as HQLA including, but not limited to, Shari'a compliant Financial Products. When the Regulator approves assets it may define the conditions that the assets must satisfy to be treated as HQLA. It must specify whether the assets are to be treated as Level 1 HQLA or Level 2A or 2B HQLA.
Other provisions relating to LCR calculation
For the purpose of calculating the LCR, if an eligible asset within HQLA becomes ineligible (e.g. due to a rating downgrade), an Authorised Person is allowed to keep the asset in its stock of HQLA for an additional 30 calendar days to allow time to adjust its stock as needed or replace the asset.
For the purpose of calculating a consolidated LCR for a Financial Group, where applicable, qualifying HQLA held to meet statutory liquidity requirements at a legal entity or sub-consolidated level may be included in the stock at the consolidated level only to the extent that the related risks are also reflected in the consolidated LCR. Any surplus of HQLA held at the legal entity can be included in the consolidated stock of HQLA only if those assets would also be freely available to the consolidated Parent entity in times of stress.
An Authorised Person must be able to meet its liquidity needs in each currency in which it has a significant Exposure. The currencies of the stock of HQLA of an Authorised Person must be similar in composition to its liquidity needs by currency.
Total Net Cash Outflow
PRU A10.2.13(1) An Authorised Person must calculate its Total Net Cash Outflow over the following 30 calendar days in accordance with the following formula:
Total Net Cash Outflows over the next 30 calendar days
Total expected cash outflows
Whichever is the lesser amount of total expected cash inflows of 75% of total expected cash outflows(2) Total expected cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities and off-balance sheet commitments by the rates at which they are expected to run off or be drawn down.(3) Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in.(4) To ensure a minimum level of HQLA holdings at all times, total cash inflows are subject to an aggregate cap of 75% of total expected cash outflows.
An Authorised Person must not double-count items. That is, for assets included as part of the eligible stock of HQLA, the associated cash inflows arising from such assets must not be counted as cash inflows for the purpose of calculating the net cash outflows over the next 30 calendar days.
PRU A10.2.15 PRU A10.2.15
The following table specifies, for each of the various categories or types of liabilities and off-balance sheet commitments, the rates at which they are expected to run off or be drawn down for the purpose of calculating the LCR.
Cash Outflows Item FactorA. Retail Deposits: Demand Deposit and term Deposits (less than 30 days maturity):• Stable Deposits• Less stable retail Deposits 5%
Term Deposits with residual maturity greater than 30 days 0%B. Unsecured Wholesale Funding: Demand and term Deposits (less than 30 days maturity) provided by small business customers:• Stable Deposits• Less stable Deposits 5%
Small business customers — Term Deposits with residual maturity greater than 30 days with no legal right to withdraw or a withdrawal with a significant penalty 0% Operational Deposits generated by clearing, custody and cash management activities:• Portion covered by Deposit insurance 25%
Cooperative banks in an institutional network (qualifying Deposits with the centralised institution). 25% Non-financial corporates, sovereigns, central banks, multilateral development banks and PSEs:• If the entire amount is fully covered by a Deposit protection scheme 40%
Other legal entity customers 100%C. Secured Funding:• Secured funding transactions with a central bank Counterparty or backed by Level 1 HQLA with any Counterparty 0%• Secured funding transactions backed by Level 2A HQLA, with any Counterparty 15%• Secured funding transactions backed by non-Level 1 HQLA or non- Level 2A HQLA, with domestic sovereigns, multilateral development banks, or domestic PSEs as a Counterparty 25%• Backed by RMBS eligible for inclusion in Level 2B HQLA 25%• Backed by other Level 2B HQLA 50%• All other secured funding transactions 100%D. Additional Requirements: Derivatives cash outflows 100% Liquidity needs (e.g. Collateral calls) related to financing transactions, Derivatives and other contracts 100% Market valuation changes on non-Level 1 HQLA posted Collateral securing Derivatives 20% Excess Collateral held by a bank related to Derivative transactions that could contractually be called at any time by its Counterparty 100% Liquidity needs related to Collateral contractually due from the reporting bank on Derivatives transactions 10)% Increased liquidity needs related to Derivative transactions that allow Collateral substitution to non-HQLA assets 100% Market valuation changes on Derivatives transactions (largest absolute net 30-day Collateral flows realised during the preceding 24 months) 100% ABCP, SIVs, Conduits, etc:• Loss of funding on Asset Backed Securities, covered bonds and other structured financing instruments 100%• Loss of funding on ABCP, SIVs, SPVs, etc 100% Undrawn committed credit and liquidity facilities:• Credit and Liquidity Facilities: Retail and small and medium-sized enterprise clients 5%• Credit Facilities: Non-financial corporates, sovereigns and central banks, PSEs, MDBs 10%• Liquidity Facilities: Non-financial corporates, sovereigns and central banks, PSEs, MDBs 30%• Credit and Liquidity Facilities: Banks subject to prudential supervision 40%• Credit Facilities: Other Financial Institutions (include Securities firms, insurance companies, fiduciaries and beneficiaries) 40%• Liquidity Facilities: Other Financial Institutions (include Securities firms, insurance companies, fiduciaries and beneficiaries) 100%• Credit and Liquidity Facilities: Other legal entity customers 100%• Other contractual obligations to Financial Institutions 100%• Other contractual obligations to retail and non-financial corporate clients 100% Other contingent funding obligations:• Non-contractual obligations related to potential liquidity draws from joint ventures or minority Investments in entities 100%• Trade finance-related obligations (including letters of credit and guarantees) 3%• Unconditionally revocable "uncommitted" credit and liquidity facilities 5%• Guarantees and letters of credit unrelated to trade finance obligations 10% Non-contractual obligations:
Debt-buy back requests (incl. related conduits)
100%• Structured products 10%• Managed funds 10%• Other non-contractual obligations 100% Outstanding debt Securities with remaining maturity > 30 days 100% Non contractual obligations where customer short positions are covered by other customers' Collateral 50% Other contractual cash outflows 100%
GuidanceThe following Guidance sets out the Regulator's views about how the Table in Rule A10.2.15 should be applied to different items.
Retail Deposits:2. Retail Deposits should include Deposits from individuals placed with an Authorised Person. Deposits from legal entities, sole proprietorships or Partnerships should be included in wholesale Deposit categories. Deposits may include demand Deposits and term Deposits, unless otherwise excluded.3. Deposits from individuals are divided under the Table into 'stable' and 'less stable' Deposits. Stable Deposits should include the portion of Deposits that are fully covered by an effective Deposit insurance scheme or by a public guarantee that provides equivalent protection and where:a. the depositor has other established relationships with the Authorised Person that make Deposit withdrawal highly unlikely; orb. the Deposits are in transactional accounts (e.g. accounts where salaries are automatically credited).4. If an Authorised Person is not able to readily identify which retail Deposits would qualify as "stable" according to paragraph 4, it should place the full amount in the "less stable" buckets.5. Less stable Deposits should consist of the portion of Deposits that do not meet the conditions in paragraph 4 and also include types of Deposits more likely to be withdrawn in a time of stress. These should include high-value Deposits (i.e. Deposits above any Deposit insurance limit), Deposits from customers who do not have established relationships with an Authorised Person that make the Deposit withdrawal unlikely, Deposits from sophisticated or high net worth individuals, Deposits where the internet is integral to the design, marketing and use of the account (on-line accounts) and Deposits with promotional interest rates (i.e. that are heavily ratedriven).6. Cash outflows related to retail term Deposits with a residual maturity or withdrawal notice period of greater than 30 days should be excluded from total expected cash outflows only if the depositor has no legal right to withdraw Deposits within the 30-day period of the LCR, or if early withdrawal results in a significant penalty that is materially greater than the loss of interest. If an Authorised Person allows a depositor to withdraw such Deposits despite a clause that says the depositor has no legal right to withdraw, the entire category of these funds should be treated as demand Deposits.
Unsecured wholesale funding:7. Unsecured wholesale funding should consist of liabilities and general obligations raised from non-natural Persons(i.e. legal entities, including sole proprietorships and Partnerships) and not collateralised by legal rights to specifically designated assets owned by the Authorised Person accepting the Deposit in the case of bankruptcy, insolvency, liquidation or resolution. Obligations related to Derivative contracts should be excluded from this category.8. The wholesale funding included in the LCR should consist of all funding that is callable within the LCR's period of 30 days or that has its earliest possible contractual maturity date within this period (such as maturing term Deposits and unsecured debt Securities), as well as funding with an undetermined maturity. This should include all funding with Options that are exercisable at the investor's discretion within the 30-day period.9. Wholesale funding that is callable by the funds provider subject to a contractually defined and binding notice period longer than the 30-day period should not be included.10. Unsecured wholesale funding provided by small and medium-sized enterprise customers should be treated as Deposits from individuals where:a. the Deposits and other extensions of funds made by non-financial small and medium-sized enterprise customers are managed as retail accounts and are generally considered as having similar Liquidity Risk characteristics to retail accounts; andb. the total aggregated funding raised from a small and medium-sized enterprise customer is less than $1 million (on a consolidated basis where applicable).
Operational Deposits11. Operational Deposits should consist of those Deposits where customers place, or leave, Deposits with an Authorised Person to facilitate their access and ability to use payment and settlement systems and otherwise make payments. Balances can be included only if the customer has a substantive dependency on the Authorised Person and the Deposit is required for such activities.12. Qualifying activities in this context refer to clearing, custody or cash management activities where the customer is reliant on the Authorised Person to perform these services as an independent third-party intermediary in order to fulfil its normal banking activities over the next 30 days. These services should be provided to institutional customers under a legally binding agreement and the termination of such agreements should be subject either to a notice period of at least 30 days or to significant switching costs to be borne by the customer if the operational Deposits are moved before 30 days.13. Qualifying operational Deposits generated by such an activity should consist of Deposits which are:a. by-products of the underlying services provided by the Authorised Person;b. not offered by the Authorised Person in the wholesale market in the sole interest of offering interest income; andc. held in specifically designated accounts and priced without giving an economic incentive to the customer to leave excess funds on these accounts.14. Any excess balances that could be withdrawn without jeopardising these clearing, custody or cash management activities should not qualify as operational Deposits.
Liquidity facilities15. A liquidity facility should consist of any committed, undrawn back-up facility that would be used to refinance the debt obligations of a customer in situations where such a customer is unable to roll over that debt in financial markets. The amount of any commitment to be treated as a liquidity facility should consist of the amount of the outstanding debt issued by the customer (or proportionate share of a syndicated facility) maturing within a 30-day period that is backstopped by the facility. Any additional capacity of the facility should be treated as a committed Credit Facility. General working capital facilities for corporate entities (e.g. revolving credit facilities in place for general corporate or working capital purposes) should not be classified as liquidity facilities, but as credit facilities.16. Despite paragraph 15, any facilities provided to hedge funds, Money market funds and special purpose funding vehicles, or other vehicles used to finance an Authorised Person's own assets, should be captured in their entirety as a liquidity facility to a Financial Institution.
Unrestricted PSIAs and other Shari'a compliant products17. For the purposes of calculating cash outflows, Unrestricted PSIAs should be treated similarly to the relevant category of Deposits specified in the Table. The appropriate run-off factor for a PSIA will depend on the contractual withdrawal rights of the investment account holders and whether it is a retail or wholesale account.18. For commodity Murabaha transactions, a run-off factor of 100% should be applied to the balance of the Murabaha payable, if the remaining term of the contract does not exceed 30 days. If early withdrawal of the original amount is allowed at the discretion of the Authorised Person with no markup, then the applicable run-off factor will be the same as that for the relevant category of Deposit or Unrestricted PSIA under the Table.
Outstanding debt securities19. Issuers with an affiliated dealer or market-maker must include outstanding debt securities (unsecured and secured, term as well as short-term) with remaining maturities greater than thirty days in order to cover the potential repurchase of such outstanding securities.
PRU A10.2.16(1) When considering its available cash inflows, an Authorised Person may include contractual inflows from outstanding Exposures only if they are fully performing and there is no reasonable basis to expect a default within the 30-day period. Contingent inflows are not included in total net cash inflows.(2) Where an Authorised Person is overly reliant on cash inflows from one or a limited number of wholesale Counterparties, the Regulator may set an alternative limit on the level of cash inflows that can be included in the LCR.
PRU A10.2.17(1) The Regulator may allow an Authorised Person to recognise as cash inflow, access to a Parent entity's funds via a committed funding facility if the Authorised Person is a Subsidiary of a foreign bank. In such instances, the committed funding facility from the Parent entity must meet both of the following criteria:(a) the facility must be an irrevocable commitment and must be appropriately documented; and(b) the facility must be quantified.(2) A committed funding facility from a Parent entity referred to in (1) can be recognised as a cash inflow only from day 16 of the LCR scenario. The cash inflow from a Parent entity can be sufficient in size to cover only net cash outflows against items with a maturity or next call date between days 16 and 30 of the LCR.
PRU A10.2.18 PRU A10.2.18
The following table specifies, for each of the various categories and types of contractual receivables, the rates at which they are expected to flow in for the purpose of the calculation of the LCR:
Cash Inflows Item Factor Maturing secured lending (incl. reverse repos and Securities borrowing), backed by the following as Collateral:• Level 1 HQLA 0%• Level 2A HQLA 15%• Level 2B HQLA — eligible RMBS 25%• Level 2B HQLA — Other assets 50%• Margin lending backed by all other Collateral 50%• All other assets 100%• Credit or liquidity facilities provided to the reporting Bank 0%• Operational Deposits held at other Financial Institutions (including Deposits held at centralised institution of network 0% Other inflows by Counter party• Amounts receivable from retail Counterparties 50%• Amounts receivable from non-financial wholesale Counterparties, from transactions other than those listed in the above inflow categories 50%• Amounts receivable from Financial Institutions and central banks, from transactions other than those listed in the above inflow categories 100%• Net Derivative receivables 100%• Other contractual cash inflows 100%
Maturing secured lending, including reverse repos and Securities borrowing1. An Authorised Person should assume that maturing reverse repurchase or Securities borrowing agreements secured by Level 1 HQLA will be rolled over and will not give rise to any cash inflows (zero %). Maturing reverse repurchase or Securities borrowing agreements secured by Level 2 HQLA should be modelled as cash inflows, equivalent to the relevant haircut for the specific assets. An Authorised Person is assumed not to roll-over maturing reserve repurchase or Securities borrowing agreements secured by non-HQLA assets and can assume it will receive 100% of the cash related to those agreements. Collateralised loans extended to customers for the purpose of taking leveraged trading positions, i.e. margin loans, should be modelled with a 50% cash inflow from contractual inflows made against non-HQLA Collateral.2. An exception to paragraph 1 is the situation where, if the Collateral obtained through reverse repo, Securities borrowing or Collateral swaps, which matures within the 30-day period, is re-used (i.e. rehypothecated) and is tied up for 30 days or longer to cover short positions. An Authorised Person should then assume that such reverse repo or Securities borrowing arrangements will be rolled over and will not give rise to any cash inflows (zero %), reflecting its need to continue to cover the short position or to repurchase the relevant Securities.3. An Authorised Person should manage its Collateral so that it is able to fulfil obligations to return Collateral whenever the Counterparty decides not to roll-over any reverse repo or Securities lending transaction. This is especially the case for non-HQLA Collateral, since such outflows are not captured in the LCR framework.
Lines of credit4. Lines of credit, liquidity facilities and other contingent funding facilities that an Authorised Person holds at other institutions for its own purposes should be assumed to be able to be drawn and so such facilities should receive a zero % inflow rate.
Inflows by Counterparty5. All inflows should be taken only at the latest possible date, based on the contractual rights available to Counterparties. Inflows from loans that have no specific maturity should not be included, with the exception of minimum payments of principal, fee or interest associated with an open maturity loan.6. Operational Deposits: a zero % inflow rate should apply to Deposits held at other Financial Institutions for operational purposes.
Other cash inflows7. Other contractual cash inflows: other contractual cash inflows should be included under this category. Cash inflows related to non-financial revenues should not be taken into account in the calculation of the net cash outflows for the purposes of the LCR. These items should receive an inflow rate of 100%.