Use of alternative liquid asset treatmen

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:

1. 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

2. 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

1. the market value of the assets held by an ADI as collateral for the CLF after applicable RBA margins have been applied.

2. Assets held by an ADI for the purposes of the CLF must:

3. meet the operational requirements for HQLA as outlined in paragraphs 22 to 25 of this Attachment; and

4. 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.