Today, the Basel Committee proposed a set of liquidity coverage ratio (LCR) disclosure standards. Part of the Basel III liquidity framework, the LCR requires a banking organization to maintain a minimum amount of liquid assets to withstand a short-term liquidity stress period. Specifically, the LCR requires a banking organization’s stock of unencumbered high-quality liquid assets (HQLAs) to be at least 100% of its total net cash outflows over a 30-day standardized supervisory liquidity stress scenario. Following is a high-level overview of the Basel Committee’s proposed LCR disclosure standards.
Overview of Basel Committee’s Proposed LCR Disclosure Standards
Scope of Application: The proposed LCR disclosure standards are intended to apply to internationally active banks on a consolidated basis.
Compliance Timing: The Basel Committee expects national regulators to implement the LCR disclosure standards by January 1, 2015 so that banks in their jurisdiction may begin making disclosures in 2015.
Frequency of Disclosures: Banking organizations are required to make LCR disclosures with the same frequency as the publication of their financial statements, irrespective of whether the financial statements are audited.
Location of Disclosures: A banking organization’s LCR disclosures must either be included in its published financial reports or, at a minimum, these financial reports must provide a direct and prominent link to LCR disclosures on the banking organization’s website or in publicly available regulatory reports.
Content of Disclosures: LCR disclosures must be made on a consolidated basis and presented in a single currency. Data must be presented as simple averages of daily observations over the previous quarter.
Common Quantitative Disclosure Template: To promote consistency and ease of use of disclosures and to enhance market discipline, the Basel Committee’s proposal would require banking organizations to disclose components of the LCR using a common disclosure template.
- The common disclosure template contains 23 line items.
- Both unweighted and weighted values of the LCR components must be disclosed.
- The unweighted value of HQLAs refers to their market value.
- The unweighted value of cash inflows and outflows refers to the outstanding balances of various types of liabilities, off-balance sheet items or contractual receivables.
- The weighted value of HQLAs refers to the value after haircuts are applied.
- The weighted value of cash inflows and outflows refers to the value after the prescribed inflow and outflow rates and assumptions are applied.
Qualitative Disclosures: In addition to the common disclosure template, banking organizations should provide sufficient qualitative discussion of the LCR to facilitate a greater understanding of the quantitative disclosures. Where significant to the LCR, banking organizations could discuss:
- Main drivers of LCR results and the evolution of the contribution of inputs to LCR calculations over time;
- Intra-period changes and changes over time;
- Composition of HQLAs;
- Concentration of funding sources;
- Derivatives exposures and potential collateral calls;
- Currency mismatch in the LCR;
- The degree of centralization of liquidity management and interaction between the group’s units; and
- Other inflows and outflows in the LCR calculation that are not captured in the common disclosure template but which the banking organization considers to be relevant for its liquidity profile.
Optional Additional Disclosures: A banking organization may choose to disclose additional qualitative and quantitative information in order to facilitate understanding and awareness of its internal liquidity risk measurement and management.
Basel Committee, Liquidity Coverage Ratio Disclosure Standards (Consultative Document) (July 19, 2013) available here: http://www.bis.org/publ/bcbs259.pdf