Eligible stock of high-quality liquid as

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:

1. 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:

1. 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;

2. 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).

1. 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.