October 10, 2014 Alert - European Commission Allows Securitization to Count as Level 2B HQLA
Today, the European Commission (“EC”) announced that it has adopted delegated acts under the Solvency II Directive and Capital Requirements Regulation. We would like to direct our membership, in particular, to the Liquidity Coverage Ratio (“LCR”). This requirement sets out the detailed rules for the calculation of the general LCR already established in the Capital Requirements Regulation, which was adopted in June 2013 as the single rulebook for prudential requirements for all banks in the European Union (“EU”).

According to the press release, these rules are “part of the ongoing calibration of the regulatory framework to ensure that it enables the financial sector to effectively support the real economy, without jeopardizing financial stability.” EU Commission Vice-President Michel Barnier further states, “These detailed rules…show that Europe is serious about creating a framework to support investment in the economy, particularly through promoting safe and transparent securitization and encouraging insurers to invest for the long term.”

An EC Memo detailing the delegation and eligibility requirements as well as the delegated regulation itself can be found here and here.

Of particular note, this act allows “high quality securitisations” for certain asset classes to be counted as level 2B high-quality liquid assets (“HQLA”), including:

The detailed LCR ratio will be progressively implemented in accordance with the Capital Requirements Regulation as follows:
  • 60% from 1 October 2015

  • 70% from 1 January 2016

  • 80% from 1 January 2017, and

  • 100% from 1 January 2018.

Therefore, 100 percent LCR implementation will be reached in 2018, one year earlier than required by the Basel standard.

These requirements are final, but can be rejected by the European Parliament or Member States during a three month period that can also be extended another three months.

If you would like to participate in SFIG’s Regulatory Capital & Liquidity Committee, please contact Alyssa Acevedo.
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