Post on 03-Jun-2018
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Certified Basel iii Professional (CBiiiPro)
Official Prep Course
Part C4
Basel iii Compliance ProfessionalsAssociation (BiiiCPA)
The largest association of Basel iii Professionals in the world
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Two Papers (2014)
1. Guidance for Supervisors on Market-
Based Indicators of Liquidity, January 2014
2. Liquidity Coverage Ratio DisclosureStandards, January 2014
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Guidance for Supervisorson Market-Based Indicatorsof Liquidity
January 2014
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Introduction
While each jurisdictionwill make its own determinationas to HQLA qualifications and their applicationtosupervised institutions
some commonalityin the tools and data used to makesuch determinations
will help ensure a level of consistencyacrossjurisdictions
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Introduction
Supervisors are expectedto work within the existingframework of levels
established by the LCRstandard
using the associatedhaircuts and diversificationrequirements associated with each level
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Introduction
As described in the LCR standard
national authorities can choose whetherto include anadditional class of Level 2B assets
This gives scopefor the potential inclusion in HQLA of awide rangeof assets
with very different liquidity profiles
This document provides suggestionsthat may assistsupervisorswhen classifying such assets
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Introduction
Liquidity Coverage Ratio (LCR)
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Introduction
Given the prominence of HQLAin the LCR formula(above)
and the broad array of asset classesthat can potentially
comprise HQLA a robust framework and tools for evaluating these
asset classesare essential to a sound and meaningfulLCR calculation
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Introduction
The liquidity value of an assetdepends on
the underlying stressscenario
the volume to be monetisedand
the timeframeconsidered Nevertheless, there are certain assets that are more likely
to generate funds
without incurring large discountsin sale or
repurchase agreement markets due to fire sales even in times of stress
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Introduction
This guidance expands upon the more generalHQLAqualification guidelines established by the LCR
It outlines the factors that influencethe extentto whichthe market for an asset can be relied upon
to raise liquiditywhen considered in the context ofpossible stresses
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Introduction
The analytical tools/methodologies identified here
are to assist supervisors in determining howparticularassets should be included
in which specific categories of HQLA, if at all
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Introduction
The currentstandard for the LCR relies on a combinationof qualitative criteria
Basel risk weights
and external credit ratings to determine asset class eligibilityfor the pool of
HQLA
These general criteria were used to categorise broad assetclasses into three levels of HQLA:
Level 1, 2A, and 2B
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Introduction
However
individualassets withinthose wide-rangingcategories
and acrossdifferent jurisdictions, financial marketsand currencies
can exhibit very different liquidity characteristics
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Introduction
In addition
the marketsfor specific assets
and thus the liquidity to be derived froma given set of
assets can vary over time
Indeed, a key lesson from the financial crisis is that
deep and liquid markets can dry up very quickly
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Introduction
Consistencywith the Baselframework
which sets forth a minimumstandard to whichinternationally active banks will be held is paramount
Appropriate use of this guidanceincludes providingtools for supervisors to use in making decisionsfor
(i) *excluding*an asset class from HQLA altogether, or (ii) moving an asset class *down*(temporarily or
permanently) from its LCR-defined HQLA position
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Introduction
The framework is ***not*** to be used to introduce intoHQLA an assetthat
is not currently partof the LCRs classifications
or the placement of an asset into a higherHQLAlevel/category
than that establishedby the LCR standard
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Introduction
Further, the guidance in this document is ***notintended*** for direct application to the sovereigndebtof a banks homejurisdiction
or from the jurisdiction in which a bank operates central bank reserves
central bank debt securities
and cash
Such assets will defer to the HQLA categories asestablished in the LCR standard
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Possible uses for an assessment framework
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Possible uses for an assessment framework
Appropriate useof these guidelines (in support of theapplication of the LCR definition of HQLA to domesticregulation) include:
1. Excludingan asset or asset class from HQLA altogether
2. Moving an asset or asset class down(temporarily or
permanently) from its LCR-defined HQLA position
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Possible uses for an assessment framework
3. Selecting additional assets(from the LCR rulesprescribed list of potentially qualifying assets)
to include within a potential Level 2Basset category
4. Raising the haircuton an individualasset
or asset class
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Possible uses for an assessment framework
The guidance is ***not***to be used to:
1. Introduce into HQLAan asset that is not currentlypart
of the LCRs classifications of acceptable assets
2. Place an asset into a higherHQLA level/category
than that established by the LCR standard
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Possible uses for an assessment framework
3. Lower the haircuton an individualasset
or asset class
4. Unilaterally reclassify the sovereign debtof a bankshomejurisdiction
or from the jurisdiction in which a bank operates
central bank reserves
central bank debt securities
or cash
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
A. Asset characteristics
1. Probability of default:
The credit qualityof an asset will influence investorswillingness or abilityto hold it
Information and data such ascredit ratings, spreads to
risk-free assetsand measurements of asset price declinesduring periods of market turmoil
can all be indicators of asset quality
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
2. Flight to quality:
Assets whose prices tend to rise during times of marketturmoil
typically illustrate higher market liquidity duringstress
The correlationbetween asset price and banking system
stress is one simple measure that could be used
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
3. Volatility:
Assets with lowvolatility
tend to be less risky and more liquid
Volatility of traded prices and spreads are simple proxymeasuresof market volatility
There should be historical evidence of relative stabilityof market terms (eg prices and haircuts) and volumes
during stressed periods
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
5. Collateral eligibility:
Frequently accepted as collateral for transactions in other
assets/derivatives at a wide range of markets, clearing houses, and
payment systems
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
6. Standardisation of asset features:
Where an asset has a standard structure
this can facilitate widespread understandingof therisks it poses
increasing investors confidencein its pricing
and hence boosting market liquidity
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
7. Price transparency:
Availabilityof transparent, publicly available pricing
sources can enhance willingnessto trade
and hence market liquidity
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
B. Market structure characteristics
1. Trading venues:
The ability to transacton an electronic trading platform
or listed exchange enhances transparency
The ability to tradethe asset on a broader rangeoftrading environments (including dealer-based ones)
can generate additional scrutinyand broadenparticipation
supporting market liquidity
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
2. Market size:
There are several aspectsof the market size for an assetclass that can have a bearingon the liquidity of that class
as a whole or of individual securities within that class
These includethe aggregate outstanding value
the aggregate trading volume
the aggregate numbers of trades observed and the weight of the asset class in global and local
investment portfolios
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
3. Issue size:
The outstanding amountof a security available fortrade
affects the ability to buy and sell the security in largequantities
4. Related financing markets:
Availability of repo or securities lendingmarkets for anasset class
increases the prospectsfor it to be liquid
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
5. Market participation:
Widespread and diverse participation in the market
is a signal of potentially higher asset liquidity
6. Market-makers:
Asset markets with a large groupof (well capitalised)market-makers offering to trade on a continuous basis
tend to have higher liquidity
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
Dataon asset and market structure characteristics
should be relatively straightforwardfor supervisors togather
(particularly in comparison to the historical metricsdiscussed below)
However, some characteristics might not be easilycapturedby quantitative data
and hence cross-market comparison may notbestraightforward
(eg market transparency is a qualitativeconcept)
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Characteristics, criteria and metrics that supervisorsshould consider in judging asset liquidity
In addition, the linkagebetween a specific characteristicand asset liquidity
is likely to varyacross markets and over time
It is recommended that supervisors supplementtheirassessment and measurements of liquidity from assetand market characteristics
by direct measurementof liquidity whenever possible
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Liquidity metrics:Direct measures of market liquidity
Quantitativemetrics capturing important aspects of themarket liquidity of a specific security or asset class
can helpsupervisors both
to assess the relative liquiditybehaviour of differentsecurities
and to develop an understanding of the rankingofliquidity across a range of asset classes
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Liquidity metrics:Direct measures of market liquidity
Manyspecific metrics of liquidity and quality exist in theacademic literature
Some key metricsthat might be of most relevance to
supervisors are summarised in Table 2(previous slides)and listed below
In some jurisdictions
historical data can be difficultto obtain particularly for securities traded predominantly in
OTC markets(eg many classes of debt securities).
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Liquidity metrics:Direct measures of market liquidity
Supervisors are likely to find a trade-off exists betweenthe use of simplemetrics
which might be straightforwardto calculate and
potentially more comparableacross assets and markets and more complexmetrics
which may have greater predictive power for marketliquidity but are only available or applicable in a subset
of markets
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Liquidity metrics:Direct measures of market liquidity
1. Depth/price impact of trading:
Including Amihud ratio (price changes relative tovolume) and autocorrelation of returns
2. Breadth:
Including bid/ask spreads
3. Immediacy:
Including average number of trades per day and numberof days with zero returns or volume.
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Liquidity metrics:Direct measures of market liquidity
While the academic literature has proposed a widevarietyof liquidity proxies to measure asset and marketliquidity
no single universally accepted measure exists that can capture all the dimensionsof liquidity
Limitationsin the readily available data across
jurisdictions and markets are the main restrictionon calculating these liquidity
metrics
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Liquidity metrics:Direct measures of market liquidity
At the very least
a simple liquidity metric requires asset price dataatthe International Securities Identification Number (ISIN)
level (Note: ISIN uniquely identifiesa security
its structure is defined in ISO 6166)
For most metrics transaction volume, outstanding issue, and/or bid-ask
quotesare also required
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Liquidity metrics:Direct measures of market liquidity
Finally
since the resultsof these calculations are mostmeaningfulwhen ***compared across time*** rather than
across jurisdictions ***several years of data are required*** to observe the
changein an assets liquidity
across different market conditions
and at different points in the business cycle
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Using characteristics and metrics to create aframework for supervisory judgment
When providing supervisory guidance
supervisors could use information on thecharacteristicsof an asset or asset class
the structureof the markets it trades in and historical dataon its trading behaviour
in a range of ways
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Using characteristics and metrics to create aframework for supervisory judgment
This section discusses threepossible approaches:
1. A historical method largely reliant on historical datato directly measure market liquidity
2. An alternative definitional approach which uses historical data to identify characteristics
that can provide usable definitionsof liquid assets
3. A simpler checklist frameworkusing asset
characteristics which may be useful in cases where supervisors face
larger data gapsin measuring asset liquidity
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Using characteristics and metrics to create aframework for supervisory judgment
The approaches proposed below are not exhaustive
but represent a reasonable rangeof options forsupervisors to consider
in organising information and dataon asset liquidity
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Using characteristics and metrics to create aframework for supervisory judgment
Supervisors will need to judge whichof the frameworksbelow
if any
are appropriatefor assets and asset classes in theirjurisdictions
In some cases
certain frameworks may be appropriatefor someassets and asset classes
but not for others
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Using characteristics and metrics to create aframework for supervisory judgment
Moreover, in all cases
the frameworks below will require significantsupervisory judgmentfor implementation
including local knowledgeabout the use and structureof particular assets
In addition, supervisors will need to make judgmentsabout
whichmetrics or characteristics of asset liquidity arelikely to be most usefulin their local market
and to their supervised institutions
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Using characteristics and metrics to create aframework for supervisory judgment
Historical method:
One possible approach would be
to rely directly on past evidenceof the historicalliquidity of assets
as a means of determining their eligibilityas HQLA
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Using characteristics and metrics to create aframework for supervisory judgment
Here the main challenges would lie
in identifying which characteristicsand which metricsof liquidity and quality from the table above
should be given most weight bearing in mind the data availability constraintsthat
are encountered in the each jurisdiction
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Using characteristics and metrics to create aframework for supervisory judgment
Once a historicaldataset has been produced
it might be feasiblewithin a single jurisdiction
to identify threshold levelsfor individual metrics,
beyond whichan asset would be classified as eligibleforthe HQLA buffer
Example- where bid-offer spreads were below X basis
pointsand daily trading volumes were above $Y
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Using characteristics and metrics to create aframework for supervisory judgment
Such an approach would not be applicable in aharmonised manner acrossjurisdictions
as the appropriate thresholds cannotbe set at a
consistent absolutelevel across markets but rather can onlybe arrived at through a process of
informed judgmentwithin a specific market
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Using characteristics and metrics to create aframework for supervisory judgment
A variant on this historicalapproach would be
to devise a means of combininga number of metricsinto a singleliquidity score
and then devising a threshold for this combined metric
Calibration of the weightsof this score would need to beestablished for the specific characteristics of the
individual jurisdictions and it may be difficult to achieve consistencyacross
asset classes
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Using characteristics and metrics to create aframework for supervisory judgment
One major drawbackof the historicalmethod is that
the exercise should be repeated at regular intervalstoensure a consistenttreatment over time
and it may also be difficult to apply to newlyissuedsecurities
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Using characteristics and metrics to create aframework for supervisory judgment
This approach has the advantagethat
it could be applied not onlyto asset classes wherehistoricalliquidity metrics are available
but also potentially to deriving definitions of liquidityfor assets where such historical liquidity metrics areharderto obtain
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Using characteristics and metrics to create aframework for supervisory judgment
Under this method
supervisors would still be required to choose whichmetricsthey felt best capturedthe market liquidity of the
assets being examined and they would also need to make judgmentsabout
thresholdsappropriate for their jurisdictions
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Using characteristics and metrics to create aframework for supervisory judgment
However
such judgmentswould be used to assess whichcharacteristics
had useful predictive powerover ***whether anindividual asset was found to be liquid***
with those that
were found to be ***useful predictors becoming
components of a definition*** of a liquid asset
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Using characteristics and metrics to create aframework for supervisory judgment
For example
if it was found that UK corporate bonds with issuesizes below 100 million
typically failed to surpassthe thresholds chosen then a necessary part of the definition of a liquidasset
would be
to have an issue size >100 million
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Using characteristics and metrics to create aframework for supervisory judgment
The definition of liquidasset could be stated
either as a set of characteristics that must allbe metindividually
or as a combined setof characteristics of which the asset ***must meet at least X
characteristics*** to be classified as liquid
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Using characteristics and metrics to create aframework for supervisory judgment
Checklist method:
The term checklist method refers to an approach
where supervisors would use their judgment to devise a set of criteriathat
an asset or asset class would need to meet to beeligibleto qualify
for a particular component of HQLA
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Using characteristics and metrics to create aframework for supervisory judgment
A strict checklist approach
would require all checks to be metfor an asset toqualify
A threshold checklist approach
would require that a minimumnumber of checks bemet
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Using characteristics and metrics to create aframework for supervisory judgment
As a practicalmatter
supervisors might choose to use a checklistmethod foridentifying eligibleassets or asset classes
if a lack of quantitativedata on the historical liquidityof the assets being studied prevented themfromadopting
either the historical
or definitional methods
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Using characteristics and metrics to create aframework for supervisory judgment
Although the checklistcould in principle incorporatequantitativechecks where data are available for a limitedset of metrics
it is most likelythat in practice
supervisors would use this method when they lackedmore detailed data and information to calculate directliquidity metrics
and instead they would need to relymore heavily onchecks assessing the *qualitative* characteristics of assets
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Using characteristics and metrics to create aframework for supervisory judgment
Checklist example: Below is an example of a checklistmethod that could assist supervisors in determiningwhich assets
***despite meeting the criteria*** of the Basel LCRtext
are ***not sufficiently liquid*** in private markets tobe included in the stock of HQLA
The example checklist uses a sequential approachtodetermining whether to excludeassets from HQLA
(or increase their haircuts)
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Using characteristics and metrics to create aframework for supervisory judgment
The checklist starts with fundamental measures:
Simple but criticalliquidity criteria
Thenprogresses to more data-intensive metricsthat directly measuredifferent aspects of asset liquidity
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Using characteristics and metrics to create aframework for supervisory judgment
Table 3 uses the liquidity metrics/measures proposed inSection 2 and provides an example of a tiered checklistthat supervisors could consider
The example in Table 3 classifies measures/metrics intofourclasses:
1. Fundamental
2. Basic 3. Data-dependent
4. Calculated
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Using characteristics and metrics to create aframework for supervisory judgment
Fundamental Metrics:
Failureto meet anyone of the fundamental metrics
would be grounds for disqualificationof an asset froman HQLA level
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Using characteristics and metrics to create aframework for supervisory judgment
For example
a corporate debt security is BBB-rated
but denominated in a non-convertible currency
that would be the sole basis needed by a supervisor todisqualifyit
These metrics would require little or no data
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Using characteristics and metrics to create aframework for supervisory judgment
Basic Metrics:
Failureto meet a combinationof these metrics
would be grounds for disqualification
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Using characteristics and metrics to create aframework for supervisory judgment
For example
if an asset met all the FundamentalMetrics
but failed to meet X out of 15listed in Table 3
the asset might be disqualifiedfrom HQLA
These metrics would require little or no data
Supervisorshave the discretion to determine
*whether* a metric should be Fundamental or Basicfor their jurisdictions
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Using characteristics and metrics to create aframework for supervisory judgment
Data-Dependent Metrics:
These metrics require basic data collectionand/or
basic calculations
If data are availableto calculate them these metrics would be applied to assets that have
***passed both the Fundamental and Basic*** metrics
To apply these metrics
supervisors would set a minimum threshold for eachmetric that would qualify an asset to be classified as anHQLA
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Using characteristics and metrics to create aframework for supervisory judgment
The supervisor could disqualifyan asset
for failing to meet anyone of the minimumthresholds
orcould disqualifyan asset for failing to meet a certain numberof minimum
thresholds
(for example, if it failed to meet two thirds of all the
minimum thresholds)
This would be at the supervisors discretion
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Using characteristics and metrics to create aframework for supervisory judgment
Calculated Metrics:
These metrics require more complexdata collection and
calculations
These metrics would be applied to assets that havepassedthe ***Fundamental, Basic, and Data-Dependent
metrics***
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Using characteristics and metrics to create aframework for supervisory judgment
These metrics would be applied in a similar mannertothe Data-Dependent Metrics
Ifa broad arrayof calculated metrics can be calculatedforparticular asset or asset class
then one of the more sophisticated methodologies historical or definitional methods
might be preferredby supervisors
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Using characteristics and metrics to create aframework for supervisory judgment
Another wayto apply the Data-Dependent andCalculated Metrics
would be to apply only certainmetrics or thresholdswithin a metric to a particular levelof HQLA
For example
qualifying Level 1HQLA may onlybe required to
pass the Fundamental and BasicMetrics but qualifying Level 2assets might need to pass the
Fundamental, Basic, and Data-DependentMetrics
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Using characteristics and metrics to create aframework for supervisory judgment
This concept can be further extended
by applying only certain metrics to a particular assetclass withinan HQLA level
For example
if qualifying Level 2assets are required to pass theFundamental, Basic, and Data-DependentMetrics
a supervisor could furtherrequire RMBSto***demonstrate a low correlation*** with risky assets
which is a Calculated Metric
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Second PaperLiquidity Coverage Ratio
Disclosure Standards
January 2014
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Introduction
This disclosure framework is focused on disclosurerequirements for the Liquidity Coverage Ratio (LCR)
These requirements will improve the transparencyofregulatory liquidity requirements
reinforce the Sound Principles
enhance market discipline
and reduce uncertaintyin the markets as the LCR isimplemented
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Introduction
It is important that banks adopt a commonpublicdisclosure framework
to help market participantsconsistently assess banksliquidity risk position
To promote consistency and ease of useof disclosuresrelated to the LCR and enhance market discipline
the Committee has agreed that internationally activebanks across member jurisdictions will be required topublish their LCR according to a common template
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Introduction
There are, however, some challengesassociated withdisclosureof liquidity positions
under certain circumstances
including the potential for undesirable dynamicsduring stress
The Committee has carefully considered this trade-offin
formulating the disclosure framework contained in thisdocument
Scope of application implementation
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Scope of application, implementationdate and frequency of reporting
The disclosure requirements set out in this document
should be applied to all internationally activebankson a consolidatedbasis
but may be used for other banksand on any subset ofentities of internationally active banks
as well to ensure greater consistency
and a level playing field
between domestic and cross-borderbanks
Scope of application implementation
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Scope of application, implementationdate and frequency of reporting
National authorities will give effectto the liquiditydisclosure requirements set out in this standard
by no later than 1 January 2015
Banks will be required to complywith these disclosurerequirements
from the date of the first reporting period after 1
January 2015
Scope of application implementation
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Scope of application, implementationdate and frequency of reporting
Banks must publishthis disclosure
at the same frequencyas, and concurrently with
the publication of their financial statements
irrespective of whether the financial statements areaudited
(ie typically quarterly or semiannually)
Scope of application implementation
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Scope of application, implementationdate and frequency of reporting
Disclosuresrequired by this document
must either be includedin banks published financialreports
or, at a minimum provide a direct and prominent link to the completed
disclosure on the banks websites
or in publicly available regulatory reports
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Disclosure requirements
Data must be presented as simple averagesof dailyobservationsover the previous quarter
(ie the average is calculated over a period of, typically,90 days)
Moreover, banks must publish the number of data pointsused
in calculating the averagefigures in the template
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Disclosure requirements
To easeimplementation burdens
national authorities may exemptbanks from therequirement for disclosure of LCR data
based on averagesof daily data up to the first reporting period after 1 January 2017
In such cases
banks should calculate averages based on monthlyfigures
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Disclosure requirements
For most data items
***both unweighted and weighted*** values of theLCR components must be disclosed
The *unweighted*value of inflows and outflows
is to be calculated as the outstanding balancesofvarious categories or types of liabilities
off-balance sheetitems or contractual receivables
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Disclosure requirements
The *weighted* value of HQLA
is to be calculated as the value after haircutsareapplied
The weightedvalue for inflows and outflows
is to be calculated as the value after the inflow andoutflow rates are applied
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Disclosure requirements
Total HQLA and total net cash outflows must bedisclosed as the adjustedvalue
where the adjusted value of HQLA is
the value of total HQLA after the applicationofboth
haircuts
and any applicable caps on Level 2B and Level 2 assets
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Disclosure requirements
The adjustedvalue of net cash outflows
is to be calculated after the capon inflows is applied,if applicable
In additionto the common template
banks should provide sufficient qualitativediscussionaround the LCR to facilitate understandingof the results
and data provided For example, where significant to the LCR, banks could
discuss:
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Disclosure requirements
(a) the main driversof their LCR results
and the evolution of the contributionof inputs to theLCRs calculation over time
(b) intra-period changesas well as changes over time
(c) the composition of HQLA
(d) concentrationof funding sources
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Disclosure requirements
(e) derivative exposuresand potential collateral calls
(f) currency mismatchin the LCR
(g) a description of the degree of centralisationofliquidity management
and interaction between the groups units
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Disclosure requirements
(h) other inflows and outflowsin the LCR calculation
that are not capturedin the LCR common template
but which the institution considers to be relevantforits liquidity profile
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LCR common disclosure template
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LCR common disclosure template
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LCR common disclosure template
Explanation of the LCR common
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Explanation of the LCR commondisclosure template
Explanation of the LCR common
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Explanation of the LCR commondisclosure template
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Explanation of the LCR common
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pdisclosure template(8) - Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools Jan. 2013
Explanation of the LCR common
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Explanation of the LCR commondisclosure template
Explanation of the LCR common
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Explanation of the LCR commondisclosure template
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Instructions for completion of the LCR
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pcommon disclosure template
Each dark grey rowintroduces a section of the template(HQLA, cash outflows and cash inflows) and does notrequire any value to be reported
The light grey rowsrepresent the broad categoriesofthe subcomponents of the LCR in the relevant section
Instructions for completion of the LCR
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pcommon disclosure template
The unshaded rowsrepresent subcomponentswithinthe major categories of cash inflows and outflows
No datashould be entered in the cross-hatched cells
Instructions for completion of the LCR
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pcommon disclosure template
Figures entered in the template must be ***averages***
of the observations of individual line items over thefinancial reporting period
(ie the average of components and the average LCRover the most recent three months of daily positions,irrespective of the financial reporting schedule)
The averages are calculated after the application
of any haircuts, inflow and outflow rates and caps,where applicable.
Instructions for completion of the LCR
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pcommon disclosure template
For example:
Instructions for completion of the LCR
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pcommon disclosure template
Weighted figures of HQLA(line 1, third column)
must be calculated afterthe application of therespective haircuts
but before the application of any caps on Level 2B andLevel 2assets
Instructions for completion of the LCR
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pcommon disclosure template
Unweighted inflows and outflows(lines 28, 1115 and1721, second column)
must be calculated as outstanding balances
Weighted inflows and outflows(lines 221, thirdcolumn)
must be calculated afterthe application of the inflowand outflow rates
Instructions for completion of the LCR
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pcommon disclosure template
Adjusted figures of HQLA(line 21, third column)
must be calculated afterthe application of both:
(i) haircutsand
(ii) any applicable caps(ie cap on Level 2B and Level 2assets)
Adjusted figures of net cash outflows(line 22, third
column) must be calculated after the application of both:(i) inflow and outflow rates and
(ii) any applicable cap(ie cap on inflows)
Instructions for completion of the LCR
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pcommon disclosure template
The LCR (line 23) must be calculated as the averageofobservations of the LCR:
Instructions for completion of the LCR
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pcommon disclosure template
Not allreported figures will sum exactly
particularlyin the denominatorof the LCR
For example
total net cash outflows (line 22) may not be exactlyequalto total cash outflows minus total cash inflows(line 16 minus line 20)
if the cap on inflows is binding
Similarly, the disclosed LCR may not be equalto an LCR computed on the basis on the average values
of the set of line items disclosed in the template
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Guidance on additional disclosures
The Committee recognises that the LCR is only onemeasureof a banks liquidity risk position
Disclosure of otherquantitative and qualitativeinformation will provide market participants
with a broader pictureof banks liquidity risk positionand management and promote market discipline
The Sound Principlesprovide additional guidancetobanks on prudent liquidity risk management
including principles on disclosure of certain keyinformation
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Guidance on additional disclosures
Using the Sound Principlesas a basisfor providinggreater qualitative information on a banks approach toliquidity risk management
will further enhancethe quality and consistency of
liquidity disclosures
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Guidance on additional disclosures
It will also allow banks to present information relevantto their business model
that may notbe adequately capturedby standardisedregulatory metrics
Additional informationthat banks choose to disclose
should provide sufficient information to enablemarket participants
to understand and analyseany figures provided
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Guidance on additional disclosures
As there is no singlemetric that can comprehensivelyquantifyliquidity risk
a bank may also choose to disclose additionalquantitative information related to its internal liquidity
risk measurement and management framework
In particular
the Basel III liquidity risk framework outlines severalkey monitoring toolsfor assessing liquidity risk
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Guidance on additional disclosures
These metrics are not regulatory requirementsunder theBasel III framework
but may be used as consistently defined monitoringtools
They are intended to capture specificinformation
related to a banks cash flows, balance sheet structureand available collateral
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Guidance on additional disclosures
The additional quantitativeinformation that banks mayconsider disclosing
could include customisedmeasurement tools or metricsthat assess the structureof the banks balance sheet
as well as metricsthat projectcash flows and futureliquidity positions
taking into account off-balance sheetrisks which arespecific to that bank
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Guidance on additional disclosures
Otherquantitative information
could include key metrics that management monitors,including, but not limited to:
(a) concentration limitson collateral pools and sources offunding
(both products and counterparties)
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Guidance on additional disclosures
Banks are required to provide a qualitative discussionoftheir LCR results
and the related componentsthat are required to bedisclosed
Banks may also chooseto provide otherqualitativeinformation to enable market participantsto gain a morethoroughunderstanding of internal liquidity risk
management and positions particularly those related to that specific institution
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Guidance on additional disclosures
This information could include:
(a) governanceof liquidity risk management, including:
Risk tolerance Structure and responsibilities for liquidity risk
management
Internal liquidity reporting
Communicationof liquidity risk strategy, policies andpractices across business lines
and with the board of directors
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Guidance on additional disclosures
(b) funding strategy
including policies on diversificationin the sourcesand tenor of funding
and whether the funding strategy is centralised ordecentralised
(c) liquidity risk mitigationtechniques
(d) an explanation of how stress testing is used (e) an outline of contingency funding plans