The objective of the LCR is to ensure that an ADI maintains an adequate level of unencumbered HQLA that can be converted into cash to meet its liquidity needs for a 30 calendar day time period under a severe liquidity stress scenario.
The LCR has two components:
the value of the stock of HQLA; and
total net cash outflows, calculated according to the scenario parameters set out in this Attachment.
The LCR is calculated as:
Start formula start fraction Stock of HQLA over Total net cash outflows over the next 30 calendar days end fraction end formula.
An ADI must include an appropriate buffer of HQLA over the LCR requirement in line with its liquidity risk tolerance.
During a period of financial stress, an ADI may need to liquidate part of its stock of HQLA and/or draw on its Committed Liquidity Facility (CLF) with the RBA, using the cash generated to cover cash outflows; as a consequence, the LCR may fall below the minimum level required under paragraph 55 of this Prudential Standard. An ADI must inform APRA immediately in the event of an actual breach of its LCR requirement or if it becomes aware of circumstances that may result in a breach of its LCR requirement.
Eligible stock of high-quality liquid assets (HQLA)
There are two categories of assets that may be included in the stock of HQLA. Assets that may be included in each category are those that the ADI is holding on the first day of the stress period, irrespective of their residual maturity. The highest-quality liquid assets (HQLA1) may be included without limit, while other high-quality liquid assets (HQLA2) – which includes HQLA2A and HQLA2B – may only comprise up to 40 per cent of the total stock of HQLA. HQLA2B must not exceed 15 per cent of the total stock of HQLA. HQLA2B must be included within the overall 40 per cent cap on HQLA2.
The calculation of the 40 per cent cap detailed in paragraph 6 of this Attachment, and the 15 per cent cap detailed in paragraph 6 of this Attachment, must take into account the impact on the stock of HQLA of the amounts of HQLA1 and HQLA2 involved in secured funding, secured lending and collateral swaps transactions maturing within 30 calendar days. The maximum amount of adjusted HQLA2 in the stock of HQLA is equal to two\-thirds of the adjusted amount of HQLA1 after haircuts have been applied. The maximum amount of adjusted HQLA2B in the stock of HQLA is equal to either: 15/85 of the sum of the adjusted amounts of HQLA1 and HQLA2A after haircuts have been applied; or, in cases where the 40 per cent cap is binding, up to one quarter of the adjusted amounts of HQLA1 after haircuts are applied.
The adjusted amount of HQLA1 is the amount of HQLA1 that would result after unwinding short‑term secured funding, secured lending and collateral swap transactions involving the exchange of any HQLA for any HQLA1 that meet, or would meet if held unencumbered, the operational requirements for HQLA set out in paragraphs 22 to 25 of this Attachment. The adjusted amount of HQLA2A is defined as the amount of HQLA2A that would result after unwinding those short‑term secured funding, secured lending and collateral swap transactions involving the exchange of any HQLA for any HQLA2A that meet, or would meet if held unencumbered, the operational requirements for HQLA set out in paragraphs 22 to 25 of this Attachment. The adjusted amount of HQLA2B is the amount of HQLA2B that would result after unwinding short-term secured funding, secured lending and collateral swap transactions involving the exchange of any HQLA for HQLA2B that meet, or would meet if held unencumbered, the operational requirements for HQLA set out in paragraphs 22 to 25 of this Attachment. In this context, short‑term transactions are transactions with a maturity date up to and including 30 calendar days.
HQLA1
HQLA1 may comprise an unlimited share of the stock of eligible HQLA. HQLA1 are included at market value and are not subject to a haircut under the LCR. These assets are limited to:
notes and coin;
central bank balances, to the extent that these balances may be drawn down 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 (BIS), the International Monetary Fund (IMF), the European Central Bank (ECB) and European Union (EU) or multilateral development banks (MDBs), and that satisfy all of the following conditions:
assigned a zero per cent risk-weight under Attachment B of Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112);
traded in large, deep and active repo or cash markets characterised by a low level of concentration;
proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions; and
not an obligation of a financial institution or any of its associated entities;
for non-zero per cent risk-weighted sovereigns: 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 ADI’s home country; and
for non-zero per cent risk-weighted sovereigns: domestic sovereign or central bank debt securities issued in foreign currencies are eligible up to the amount of the ADI’s stressed net cash outflows in that specific foreign currency stemming from the ADI’s operations in the jurisdiction where the ADI’s liquidity risk is being taken.
HQLA2A
An ADI may include the following as HQLA2A where these assets have been recognised by APRA or the relevant prudential regulator in the jurisdiction where the liquidity risk is taken. A 15 per cent haircut is applied to the current market value of each HQLA2A held in the stock of eligible HQLA. HQLA2A are limited to:
marketable securities representing claims on or guaranteed by sovereigns, central banks, PSEs or MDBs that satisfy all of the following conditions:
assigned a 20 per cent risk‑weight under Attachment B of APS 112;
traded in large, deep and active repo or cash markets characterised by a low level of concentration;
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 not exceeding 10 per cent or increase in haircut not exceeding 10 percentage points over a 30-day period during a relevant period of significant liquidity stress); and
not an obligation of a financial institution or any of its associated entities;
corporate debt securities (including commercial paper) and covered bonds that satisfy all of the following conditions:
in the case of corporate debt securities: are not issued by a financial institution or any of its associated entities and are plain vanilla assets whose valuation is readily available based on standard methods and does not depend on private knowledge;
in the case of covered bonds: are not issued by the ADI itself or any of its associated entities;
the assets have a credit rating from a recognised external credit assessment institution (ECAI) of at least AA-[2] or, in the case of an ADI that has approval to use the internal ratings-based (IRB) approach to credit risk under Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113), do not have a credit assessment by a recognised ECAI and are internally rated as having a probability of default (PD) corresponding to a credit rating of at least AA-;
traded in large, deep and active repo or cash markets characterised by a low level of concentration; and
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 per cent).
The portfolio of HQLA2A held by the ADI must be well diversified in terms of type of assets, type of issuer and specific counterparty or issuer.
HQLA2B
An ADI may include the following as HQLA2B where these assets have been recognised by APRA or the relevant prudential regulator in the jurisdiction where the liquidity risk is taken:
subject to a 25 per cent haircut, residential mortgage backed securities that satisfy the following criteria:
are not issued by, nor are the underlying exposures originated by, the ADI itself or an associated entity of the ADI;
have a long-term credit rating from a recognised ECAI of AA or higher[3] or, in the absence of a long-term rating, a short-term rating equivalent in quality to the long-term rating;
traded in large, deep and active repo or cash markets characterised by a low level of concentration;
proven record as a reliable source of liquidity in markets (repo or sale) even during stressed market conditions (i.e. a maximum decline in price not exceeding 20 per cent or increase in haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress);
the underlying asset pool is restricted to residential mortgages and cannot contain structured products;
the underlying mortgages are full recourse loans and, at issuance, have a maximum average loan-to-valuation ratio (LVR) of 80 per cent; and
the securitisation is subject to risk retention regulations which requires an issuer to retain an interest in the assets they securitise;
subject to a 50 per cent haircut, corporate debt securities (including commercial paper) that satisfy the following criteria:
are not issued by a financial institution or an associated entity;
either:
(1) have a long-term credit rating from a recognised ECAI between A+ and BBB-[4] or, in the absence of a long-term rating, a short-term rating equivalent in quality to the long-term rating; or
(2) in the case of an ADI that has approval to use the IRB approach to credit risk under APS 113, do not have a credit assessment by a recognised ECAI and are internally rated as having a PD estimate corresponding to a credit rating of between A+ and BBB-;
traded in large, deep and active repo or cash markets characterised by a low level of concentration; and
proven record as a reliable source of liquidity in markets (repo or sale) even during stressed market conditions (i.e. a maximum decline in price not exceeding 20 per cent or increase in haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress).
subject to a 50 per cent haircut, common equity shares that satisfy the following criteria:
are not issued by a financial institution or an associated entity;
are exchange traded and centrally cleared;
are a constituent of the major stock index where the liquidity risk is taken;
are denominated in the currency of the jurisdiction where a bank’s liquidity risk is taken;
traded in large, deep active repo or cash markets characterised by a low level of concentration; and
proven record as a reliable source of liquidity in markets (repo or sale) even during stressed market conditions, i.e. a maximum decline in share price not exceeding 40 per cent or increase in haircut not exceeding 40 percentage points over a 30-day period during a relevant period of significant liquidity stress.
Use of alternative liquid asset treatment for LCR
A locally incorporated LCR ADI may establish a CLF with the RBA, sufficient in size to cover any shortfall in Australian dollars between the ADI’s holdings of HQLA and net cash outflows. Qualifying collateral for the CLF will comprise all assets eligible for repurchase transactions with the RBA under normal market conditions and any other assets nominated by the RBA.
The CLF must only be used by an ADI to manage any shortfall in Australian dollars between its holding of HQLA and its net cash outflows.
The amount of HQLA that may be included in the numerator of an ADI’s LCR calculation is the market value of HQLA1 and HQLA2 held by the ADI, after applicable haircuts as outlined in paragraphs 10 and 12 of this Attachment, plus the lowest of:
the contractual amount of the CLF an ADI has agreed with the RBA that is approved by APRA for LCR purposes (refer to paragraphs 17 to 20 of this Attachment); or
the contractual amount of the CLF as defined in paragraph 15(a),
less the market value, after RBA margins have been applied, of eligible CLF securities that have been pledged as collateral under maturing secured funding transactions to a counterparty and to which a zero per cent run-off rate applies,
plus the market value, after RBA margins have been applied, of eligible CLF securities that have been received by the ADI as collateral under maturing secured lending transactions, where the collateral received is not used to cover short positions as outlined in paragraph 56 of this Attachment, and to which a zero per cent inflow rate applies; or
the market value of the assets held by an ADI as collateral for the CLF after applicable RBA margins have been applied.
Assets held by an ADI for the purposes of the CLF must:
meet the operational requirements for HQLA as outlined in paragraphs 22 to 25 of this Attachment; and
be well diversified in terms of type of assets, type of issuer and specific counterparty or issuer.
An ADI that requires a CLF from the RBA for LCR purposes must apply to APRA for approval before establishing the CLF.
To facilitate APRA’s approval process, the ADI’s funding strategy must clearly state the amount of the CLF required in the forecast period. An ADI must make every reasonable effort to manage its liquidity risk through its own balance sheet management before applying for a CLF for LCR purposes.
Following the initial approval, an ADI must apply on an annual basis for APRA’s approval of the size of the CLF that may be recognised for LCR purposes.
In the case of unforeseen changes in circumstances, an ADI may apply to APRA, at any time, for a change in the amount of its CLF to be recognised for LCR purposes by submitting an updated Board-approved funding and liquidity plan.
In the event that an ADI draws funds under its CLF other than for intraday purposes or the funding of end-of-day balances held at the RBA, senior management must attest that the proceeds of the drawdown will be used for Australian dollar liquidity needs only. APRA must be advised of any proposed drawdown of the CLF that is not for intraday purposes or for the funding of end-of-day balances held at the RBA.
Operational requirements
All assets in the stock of eligible HQLA must be managed as part of that stock and are subject to the following operational requirements:
the assets must be available for the ADI to convert into cash at any time;
the assets must be unencumbered and be under the control of the specific function or functions charged with managing the liquidity risk of the ADI. This would typically be the treasurer who must have the continuous authority, and legal and operational capability, to monetise any asset in the stock; and
control must be evidenced either by maintaining assets in a separate pool managed by the function with the sole intent to use as a source of contingent funds, or by demonstrating that the function can monetise the asset at any point in the 30-day stress period and that the proceeds of doing so are available to the function throughout the 30-day stress period without directly conflicting with a stated business or risk management strategy.
The assets must not be pledged to secure, collateralise or credit enhance any transactions or be designated to cover operational costs (such as rents and salaries). Assets received in reverse repo and securities financing transactions that are held at the ADI, have not been rehypothecated and are legally and contractually available for the ADI’s use may be considered as part of the stock of HQLA.
At Level 2, an ADI may also include in the stock of HQLA, liquid assets that qualify for inclusion in the numerator of the LCR as set out in paragraphs 9 to 17, 22 to 23 and 28 of this Attachment, where they are held to meet legal entity requirements, where applicable, and the related risks as measured by the legal entity’s net cash outflows are also reflected in the LCR. Any surplus of liquid assets held at the legal entity may only be included in the Level 2 stock if those assets would be freely available to the consolidated (parent) entity in times of stress.
For the purpose of calculating the LCR, if an eligible HQLA or eligible CLF liquid asset becomes ineligible (e.g. due to rating downgrade), an ADI may keep the asset in its stock of liquid assets for an additional 30 calendar days. This allows the ADI time to adjust its stock as needed or replace the asset.
Level 2 consolidated banking group
The LCR is to be met by an ADI on both a Level 1 and Level 2 basis. Where an ADI has a branch or subsidiary in an offshore jurisdiction, in calculating a subsidiary’s LCR the ADI must apply the requirements outlined in this Prudential Standard. The only exceptions are:
for retail and small and medium enterprise (SME) deposits, where the host supervisor’s outflow assumptions must be applied; and
alternative liquid assets, as provided for in the Basel Committee on Banking Supervision’s (Basel Committee) global framework for liquidity risk and allowed by the host supervisor, may be included.
Where an ADI has a branch or subsidiary in an offshore jurisdiction that does not apply the Basel Committee’s global framework for liquidity risk, the cash flow assumptions outlined in this Prudential Standard must be applied in calculating the ADI’s Level 2 LCR.
An ADI with a material banking subsidiary in another offshore jurisdiction must ensure that the subsidiary maintains an LCR of at least 100 per cent. APRA may allow an ADI to include assets that are formally recognised as eligible liquid assets by the relevant offshore prudential regulator.
For the calculation of the Level 2 LCR, an ADI must take into account restrictions on the transferability of liquid assets across borders. Excess liquidity is not to be recognised in the Level 2 LCR unless there is reasonable certainty about the availability of such liquidity.
Net cash outflows
Total net cash outflows represent the total expected cash outflows minus total expected cash inflows in the specified stress scenario for the subsequent 30 calendar days. 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 as set out in Table 3 of paragraph 53 of this Attachment. Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates (refer to paragraphs 54 to 66 of this Attachment) at which they are expected to flow in under the scenario, up to an aggregate cap of 75 per cent of total expected cash outflows. That is:
An ADI must not double‑count items. That is, if assets are included as part of the stock of HQLA (the numerator of the LCR), the associated cash inflows cannot also be counted as cash inflows.
APRA will assess the suitability of an ADI’s assumptions made for those cash flow items that are derived. An ADI must be in a position to provide analysis and evidence to justify the assumptions.
Where APRA determines that an ADI is actively using collateral swaps for liquidity management purposes, APRA may require that the ADI include in its LCR calculation the net cash flow impact of collateral swaps based on a method determined by APRA at that time.
Cash outflows
Retail deposit outflows
For the purposes of the LCR, retail deposits are defined as deposits placed with an ADI by a natural person. Deposits from legal entities, sole proprietorships or partnerships are captured in wholesale deposit categories. Retail deposits include demand deposits and term deposits, unless otherwise excluded under the criteria set out in paragraphs 41 and 42 of this Attachment.
Where a person places funds with an intermediary, which then places those funds with an ADI, the deposit with the ADI is considered to be a deposit from a financial institution unless, during the next 30 days:
1. the person retains all legal rights regarding the withdrawal or other movement of the funds;
2. the person exercises these rights in practice and cannot transfer these rights to the intermediary;
3. there is clear and prominent disclosure to the person that the funds will be placed with the ADI; and
4. the intermediary or an associated entity can neither make investment decisions on behalf of the person regarding the deposit, nor withdraw funds from the ADI in the absence of specific directions to do so from the person (other than miscellaneous items such as fees, expense reimbursements, taxes).
If all of these conditions are satisfied, an ADI may treat the funds as if they are from the person. An ADI must be able to demonstrate how this treatment satisfies the conditions outlined in this paragraph.
Retail deposits are divided into stable and less stable portions of funds, as described below.
Stable deposits are the portion of deposits that are fully covered by the Financial Claims Scheme (or an effective government deposit insurance scheme) where:
the depositor has other established relationships with the ADI that make deposit withdrawal highly unlikely; or
the deposits are in transactional accounts (e.g. accounts where salaries are automatically credited).
Less stable deposits are the portion of deposits that do not meet the requirements of stable deposits.
Certain types of deposits are considered more likely to be withdrawn in a time of stress. These include high-value deposits (i.e. deposits above any government deposit guarantee limit), deposits from customers who do not have established relationships with an ADI that would make the deposit withdrawal unlikely, deposits where the internet is integral to the design, marketing and usage of the account (on-line accounts) and deposits with promotional interest rates (heavily rate-driven).
An ADI must assess each less stable account or product balance against the following scorecard:
Table 1 – The scorecard
Criteria
Score
Deposit balance is greater than any government deposit guarantee limit where it exists and, in its absence, where the deposit balance is greater than the equivalent of AUD 250,000
2
Deposit is an on-line account
2
Absence of an established customer relationship
1
Deposit is heavily rate‑driven
1
The total score is then used to allocate the account or product deposit outflow as follows:
Table 2 – Less stable deposit allocations
Score
Run-off rate
0 – 2
10 per cent
3 or more
25 per cent
Fixed‑term deposits
Cash outflows related to fixed or term deposits with a residual maturity or withdrawal notice period of greater than 30 days will be excluded from LCR calculations if the depositor has no legal right to withdraw deposits within the 30-day horizon of the LCR, or if early withdrawal results in a significant penalty that is materially greater than the loss of interest.
If an ADI 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 must be treated as demand deposits.
An ADI may allow depositors experiencing hardship to withdraw their term deposits without changing the treatment of the entire pool of deposits. The ADI must have a policy defining hardship.
Unsecured wholesale funding outflows
For the purposes of the LCR, unsecured wholesale funding is defined as those liabilities and general obligations that are raised from non-natural persons (i.e. legal entities, including sole proprietorships and partnerships) and are not collateralised by legal rights to specifically designated assets owned by the borrowing institution in the case of bankruptcy, insolvency, liquidation or resolution. Obligations related to derivative contracts are explicitly excluded from this definition.
Wholesale funding included in the LCR is defined as all funding that is callable within the LCR’s horizon of 30 days or that has its earliest possible contractual maturity date within this horizon (such as maturing term deposits and unsecured debt securities), as well as funding with an undetermined maturity. This must include all funding with options that are exercisable at the investor’s discretion within the 30-day horizon. Wholesale funding that is callable by the provider of the funds, subject to a contractually defined and binding notice period surpassing the 30-day horizon, may be excluded.
Unsecured wholesale funding provided by SME customers may be treated as retail deposits where:
the deposits and other extensions of funds made by non-financial SME customers are managed as retail exposures and are generally considered as having similar liquidity risk characteristics to retail accounts; and
the total aggregated funding raised from an SME customer is less than AUD 2 million, (on a consolidated basis where applicable).
Operational deposits
For the purpose of the LCR, operational deposits are those where customers place, or leave, deposits with an ADI in order to facilitate their access and ability to use payment and settlement systems and otherwise make payments. Deposits may only be included as operational deposits if the customer has a substantive dependency on the ADI and the deposit is required for such activities.
For the purpose of determining operational deposits, qualifying activities in this context refer to clearing, custody or cash management activities where the customer is reliant on the ADI 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 must be provided to institutional customers under a legally binding agreement and the termination of such agreements must 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.
Qualifying operational deposits generated by such an activity are those where the deposits are:
by-products of the underlying services provided by the ADI;
not offered by the ADI in the wholesale market for the sole purpose of offering interest income; and
held in specifically designated accounts and priced without giving an economic incentive to the customer to leave excess funds in these accounts.
Any excess balances that could be withdrawn without jeopardising these clearing, custody or cash management activities do not qualify as operational deposits.
Liquidity facilities
A liquidity facility is 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 rollover that debt in financial markets. The amount of any commitment to be treated as a liquidity facility is 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 is to 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) must not be classified as liquidity facilities, but as credit facilities.
Notwithstanding paragraph 51 of this Attachment, any facilities provided to hedge funds, money market funds and special purpose funding vehicles, or other vehicles used to finance an ADI’s own assets, must be captured in their entirety as a liquidity facility to a financial institution.
The following table sets out the run-off rates that must be applied to each liability and off‑balance sheet cash outflow category.
Table 3 – Cash outflow categories
Run-off rate (%)
Cash outflow category
Retail and qualifying SME deposits (refer to paragraphs 34 to 40 and 46)
5
Stable deposits
10
Less stable retail deposits
25
Higher run-off less stable retail deposits
Unsecured wholesale funding (refer to paragraphs 44 to 46)
5
Operational deposit balances from all counterparties fully covered by deposit insurance
25
Operational deposit balances from all counterparties not fully covered by deposit insurance
Non-operational deposits from non-financial corporations, sovereigns, central banks, PSEs, MDBs and SMEs of greater than AUD 2m:
20
where the entire amount is fully covered by deposit insurance
40
where the entire amount is not fully covered by deposit insurance
100
All other non-operational deposits
100
Unsecured debt issuance
Secured funding
0
Secured funding transactions backed by HQLA1, with any counterparty
0
Secured funding transactions with any counterparty backed by CLF-eligible debt securities, where the ADI pledging assets has a CLF with the RBA subject to the ADI’s CLF limit
Run-off rate (%)
Cash outflow category
Secured funding (continued)
15
Secured funding transactions backed by HQLA2A, with any counterparty
25
Secured funding transactions that are not eligible for inclusion in the 0 or 15 per cent categories above where the counterparties are domestic sovereigns, PSEs (but not the RBA) or MDBs with a risk weight of 20 per cent or lower under APS 112Secured funding transactions backed by RMBS eligible for inclusion as HQLA2B
50
Secured funding transactions backed by other HQLA2B with any counterparty
100
All other secured funding transactions
Asset‑backed commercial paper (ABCP), asset backed securities, covered bonds and other structured financing instruments/facilities
100
Maturing transactions issued by the ADI itself
100
Loss of funding on SPVs, conduits and structured investment vehicles due to inability to refinance maturing debt, embedded options and other potential loss of funding
Increased liquidity needs related to derivatives and other transactions
100
Derivatives cash outflows[5]
100
Collateral that would need to be posted as a result of a downgrade of 3-notches of the ADI
Run-off rate (%)
Cash outflow category
Increased liquidity needs related to derivatives and other transactions (continued)
100
Excess non-segregated collateral held by the ADI that could contractually be called at any time by the counterparty
100
Contractually required collateral on transactions for which the counterparty has not yet demanded the collateral be posted
100
Contracts that allow collateral substitution to non-HQLA– the amount of HQLA that may be substituted without the ADI’s consent
100 per cent of the largest absolute net 30-day collateral flow realised in the past 24 months[6]
Collateral outflows due to market valuation changes on derivative transactions and other transactions
20
Valuation changes on posted non-HQLA1 collateral securing derivatives and other transactions
Committed facilitiesFor the undrawn portion of committed credit and liquidity facilities:
5
to retail and SME customers
to non-financial corporate, sovereigns and central banks, PSEs:
10
credit facilities
30
liquidity facilities
40
to banks and other ADIs subject to prudential supervision
Run-off rate (%)
Cash outflow category
Committed facilities (continued)For the undrawn portion of committed credit and liquidity facilities:
to other financial institutions:
40
credit facilities
100
liquidity facilities
100
Other legal entity customers
Other contingent funding obligations
5
Revocable credit and liquidity facilities
Average of actual monthly net outflows in a recent 12‑month period
Trade finance related obligations
50 per cent of the average of actual monthly net outflows in a recent 12‑month period
Guarantees and letters of credit other than trade finance related obligations
10 per cent for short‑term securities and 5 per cent for long‑term securities unless otherwise agreed with APRA
Buybacks of domestic Australian debt securities
5
Non-contractual obligations related to structured products and managed funds
To be set by the ADI unless APRA determines the rate for the ADI
Issuers with an affiliated dealer or market maker
To be set by the ADI unless APRA determines the rate for the ADI
Other non-contractual contingent funding obligations
100
Other contractual cash outflows
Cash inflows
When considering its available cash inflows, an ADI must only include contractual inflows from outstanding exposures that are fully performing and for which it has no reason to expect a default within the 30‑day time horizon. Where APRA is of the view that an ADI is overly reliant on cash inflows from one or a limited number of wholesale counterparties, APRA may set an alternative limit on the level of cash inflows that may be included in the LCR in consultation with the ADI.
Secured lending, including reverse repos and securities borrowing
An ADI must assume that maturing reverse repurchase or securities borrowing agreements secured by HQLA1 will be rolled over and will not give rise to any cash inflows (zero per cent). Maturing reverse repurchase or securities borrowing agreements secured by other HQLA are to be modelled as cash inflows, as outlined in Table 4 below, due to the reduction of funds extended against the collateral. Collateralised loans extended to customers for the purpose of taking leveraged trading positions are to be modelled with a 50 per cent cash inflow from contractual inflows made against non-HQLA1 or non-HQLA2.
As an exception to paragraph 55 of this Attachment, if the collateral obtained through reverse repo, securities borrowing or collateral swaps, which matures within the 30-day horizon, is re-used (i.e. rehypothecated) and is tied up for 30 days or longer to cover short positions, an ADI must assume that such reverse repo or securities borrowing arrangements will be rolled over and will not give rise to any cash inflows (zero per cent), reflecting its need to continue to cover the short position or to re-purchase the relevant securities.
Table 4 – Maturing secured lending inflow rates
Maturing secured lending backed by the following asset category
Inflow rate(%)(if collateral is not used to cover short positions)
Inflow rate(%)(if collateral is used to cover short positions)
HQLA1
0
0
CLF-eligible debt securities, where the ADI receiving assets has a CLF with the RBA subject to the ADI’s CLF limit
Margin lending backed by securities that are not HQLA1, HQLA2 or CLF-eligible securities
50
0
All other collateral
100
0
Lines of credit
Lines of credit, liquidity facilities and other contingent funding facilities that an ADI holds at other institutions for its own purposes receive a zero per cent inflow rate.
APRA may allow recognition of access to head office funds via a committed funding facility if the ADI is a foreign ADI. In such instances, the head office committed funding facility must meet all of the following criteria:
the committed funding facility is an irrevocable commitment from the branch’s head office and is appropriately documented; and
the committed funding facility is quantified.
This paragraph does not apply to a foreign ADI that is part of a group that also has a locally-incorporated banking subsidiary in Australia.
A foreign ADI may meet up to 50 per cent of its LCR requirement with a head office committed funding facility. The remaining liquidity requirement must be met with eligible liquid assets as detailed in this Attachment.
Inflows by counterparty
All inflows are to be taken only at the latest possible date, based on the contractual rights available to counterparties. Inflows from loans that have no specific maturity are not included, with the exception of minimum payments of principal, fee or interest associated with an open maturity loan.
Retail and SME inflows
An ADI is assumed to receive all fully performing contractual inflows from retail and SME[\[7\]](#_ftn7) customers. At the same time, however, an ADI is assumed to continue to extend loans to retail and SME customers, at a rate of 50 per cent of contractual inflows. This results in a net inflow rate of 50 per cent of the contractual amount.
Other wholesale inflows
An ADI is assumed to receive all fully performing contractual wholesale cash inflows. In addition, an ADI is assumed to continue to extend loans to wholesale clients, at a rate of zero per cent of inflows for financial institutions and central banks, and 50 per cent for all others, including non-financial corporates, sovereigns, PSEs and MDBs. This will result in an inflow rate of:
100 per cent from financial institution and central bank counterparties; and
50 per cent for other entities.
Inflows from maturing securities not included in the stock of HQLA receive an inflow rate of 100 per cent.
Operational deposits
A zero per cent inflow rate applies to deposits held at other financial institutions for operational purposes.
Likewise, the depositing ADI must not count any inflow for deposits held at the centralised institution in a cooperative banking network, which are assumed to stay at the centralised institution. These funds will receive a zero per cent inflow rate.
These derivative items receive an inflow rate of 100 per cent.
Other contractual cash inflows
Other contractual cash inflows receive an inflow rate of 100 per cent. Cash inflows related to non-financial revenues are not taken into account in the calculation of the net cash outflows for the purposes of the LCR.