Credit institutions must always have sufficient liquid assets available to ensure their capacity to pay their creditors (other banks, customers, etc.). The Liquidity Coverage Ratio (LCR) liquidity coverage requirement has been introduced as well as a benchmark for stable refinancing, the Net Stable Funding Ratio (NSFR), in order to ensure that this is also the case in times of stress. The obligation to observe these requirements applies both on a consolidated basis as well as on an individual level.
A possible exemption from these liquidity requirements exists for credit institutions that are also subject to consolidated supervision or which are part of an IPS. This section describes the details relating to the procedure and the application process for exemption (a waiver) from the application of the liquidity requirements on an individual basis.
Credit institutions must, if they wish to make use of a waiver, receive the approval of the relevant competent supervisory authority (the European Central Bank or the Financial Market Authority) for a waiver regarding liquidity requirements on an individual basis. Applications in accordance with Article 8 CRR must be submitted by the respective consolidating institution.
Regulation (EU) No 575/2013 (“CRR”) on prudential requirements for credit institutions and investment firms has been in force since 1 January 2014. Part Six of the CRR (Articles 411 to 428 CRR) defines the provisions governing liquidity. These are further determined and applied by the delegated Regulation on the LCR, which was issued on 10 October 2014.
Under Article 8 CRR, the Financial Market Authority may grant a partial or complete exemption (waiver) to the subordinate institutions of a group of credit institutions (para. 2) and members of an Institutional Protection Scheme (para. 4) of the application of Part Six CRR (liquidity) and monitor them as a separate liquidity sub-group, provided that all of the requirements stated in Article 8 (1) CRR have been fulfilled.
Subsidiaries, which have been excluded from the scope of supervisory consolidation pursuant to Article 19 CRR (“de minimis”) are not entitled to apply for an exemption.
Liquidity Coverage Requirement (LCR)
The liquidity coverage requirement is determined in Article 412 (1) CRR. Institutions are required at all times to:
“hold liquid assets, the sum of the values of which covers the liquidity outflows less the liquidity inflows under stressed conditions so as to ensure that institutions maintain levels of liquidity buffers which are adequate to face any possible imbalance between liquidity inflows and outflows under gravely stressed conditions over a period of thirty days.”
The obligation to comply with the Liquidity Coverage Requirement (LCR) entered into force on 1 October 2015 (see Article 460 (2) CRR).
Reporting requirements continue to exist
An exemption (waiver) granted by the Financial Market Authority or the European Central Bank from the application of the liquidity requirements on an individual basis (liquidity waiver) does not exempt institutions from reporting obligations in accordance with Part Six of the CRR or from the requirements in accordance with ITS reporting (LCR, NSFR, supplementary monitoring instruments).
Net Stable Funding Ratio (NSFR)
The obligation to comply with the stable funding requirements (NSFR – Article 413 (1) CRR) entered into force on 1 January 2016 (see Article 521 (2) b) CRR).
Duration of the procedure
A timeframe of six months shall generally apply for the procedure from the date of submission of the complete application. If the institution also intends to apply for an exemption in accordance with Art. 30b BWG in conjunction with Article 7 CRR then this should if possible be applied for at the same time as this procedure.
Simultaneous submission of this application (liquidity waiver) with an application for exemption from solvency requirements on an individual basis
If the institution also intends to apply for an exemption in accordance with Article 30b BWG in conjunction with Article 7 CRR (Exemption from the application of solvency requirements on an individual basis) then this should be applied for where possible at the same time as this procedure.
- The requirements set out in Part Six CRR (liquidity) shall be complied with by the institution on a (sub-) consolidated basis:
- As a condition for the authorisation the Financial Market Authority demands a 100 % LCR ratio (Liquidity Coverage Ratio) to be held on a consolidated basis.
- In periods of stress institutions may use their liquid assets to cover their net liquidity outflows (Article 412 (1) CRR). A brief under-running of the 100% threshold is there admissible in periods of stress, provides that the assets were used to address liquidity shortages within the group/the Institutional Protection System (IPS).
- All institutions applying must be authorised in the same Member State (Article 8 (2) CRR).
- The institutions have entered into contracts that, to the satisfaction of the competent authorities, provide for the free movement of funds between them to enable them to meet their individual and joint obligations as they come due;
- The contracts must ensure that all institutions that have been granted a waiver as well as the consolidating institution are able to honour their payment obligations at all times, and where applicable to make additional liquid means available. The contractual fixing of support measures may not be limited and must extend to the limits of regulatory provisions and their own resilience. A legal entitlement is therefore to be defined against the consolidating institution on ensuring liquidity within the group of credit institutions (in the IPS such a legal entitlement must exist on the basis of Article 113 (7) CRR).
- The liquidity positions of all institutions are constantly monitored and subject to oversight by the consolidating institution on a (sub-) consolidated basis, thereby ensuring a sufficient level of liquidity for all of these institutions:
- Compliance at all times with the minimum requirements on liquidity risk management pursuant to Article 39 BWG (including the of the FMA regulation in accordance with Article 39 para. 4 BWG, the Credit Institution Risk Management Regulation – (KI-RMV – Kreditinstitute-Risikomanagement-Verordnung) on a group-wide / IPS-wide level;
- The consolidating institution therefore must be in a position at all times to make a same-day notification to the supervisory authorities;
- The consolidating institution therefore must be in a position at all times to produce an up-to-date group-wide / IPS-wide liquidity contingency plan;
- Establishment of appropriate shared IT solutions and explicitly contractually/statutorily anchored mutual information rights or information requirements.
- There is no current or foreseen material practical or legal impediment to the fulfilment of the contracts:
- The effective enforcement of the contractual basis must be possible. Existing or foreseeable impediments for the fulfilling of contracts shall thereby be prevented.
- Only fully consolidated subsidiary institutions may receive a waiver from the liquidity coverage requirement on an individual basis (this shall not apply for applications in accordance with Article 8 (4) CRR – for IPSs).
- The application in accordance with Article 8 (1) CRR may also include an application for exemption from the requirements referred to in Article 86 of Directive 2013/36/EU (CRD IV) – transposed in Article 12 KI-RMV – provided that the following additional requirements have been fulfilled:
- Contractual granting of far-reaching controlling rights in connection with the liquidity risk management requirements in accordance with Article 12 KI-RMV for the benefit of the consolidating institution or a accordingly suitable centralised controlling committee.
The application must be submitted by the consolidating institution (including the necessary proof of authorisation and the necessary signatures of the party giving the authorisation).
The application must contain the following items:
- Contractual agreements;
- Filled out reporting forms (at least three LCR reports using the latest available ITS Reporting Template);
- Current stress test results on a consolidated basis including the underlying assumptions pursuant to Article 12 KI-RMV;
- An emergency plan on a consolidated basis pursuant to Article 12 KI-RMV;
- Specific proof of the ability to make a daily LCR report, both on a consolidated basis as well as on an individual basis for the subordinate institutions, i.e. supplying LCR templates for all institutions at several reference dates during the month that the application is made in;
- In order to be able to gain an adequate picture about the liquidity position of the group of credit institutions/the IPS, the FMA may also stipulate that institutions making the application to submit a daily or weekly report on the key figures for liquidity (LCR) on an individual and/or consolidated basis for the period between making the application until the waiver is finally authorised.
The information provided is intended purely as a service by the FMA. No rights and obligations over and above the provisions of the law can be derived from this information.
The FMA reserves the right to place additional requirements or to request additional proof from the institutions during the authorisation process.