How does DNB determine the outflows for those transactions when the likelihood and potential volume of the liquidity outflows are material?
In order to promote consistent and harmonised reporting by institutions in accordance with Article 23 LCR DR, DNB follows the Guidance on Article 23 LCR DR as included in the EBA report ‘Monitoring the Liquidity Coverage Ratio Implementation in the EU’.
In accordance with Article 23 of the Delegated Act on the Liquidity Coverage Requirement (Commission Delegated Regulation [EU] 2015/61), institutions need to assess the likelihood and potential volume of liquidity outflows during 30 calendar days for other products and services which are not covered in Articles 27-31a LCR DR and which they offer or sponsor or which potential purchasers would consider associated with them.
Since no specific outflow percentages are prescribed in Article 23 LCR DR, institutions can use their own methodology for assigning an appropriate outflow percentage to these products and services. As part of this assessment, institutions need to assume combined idiosyncratic and market-wide stress and they need to take into account material reputational damage that could result from not providing liquidity support to the products and services.
To complement the regular LCR reporting framework, DNB has set up an annual qualitative data request aimed at banks with material liquidity outflows reported under Article 23 LCR DR. The goal is (1) to check whether the correct products and services are being reported under Article 23 LCR DR; and (2) to obtain information about the methodology used by an institution to decide whether the outflows it applies to these products and services are adequately determined.
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