Operational requirementsOperational requirements

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:

1. the assets must be available for the ADI to convert into cash at any time;

2. 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

3. 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.