European Banking Authority updates EU liquidity monitoring report with new guidance on LCR open reverse repos and NSFR indirect client clearing

The European Banking Authority published an updated report on monitoring the Liquidity Coverage Ratio and the Net Stable Funding Ratio in the EU, refining supervisory expectations on key liquidity risk topics following the March 2023 banking turmoil and related shifts in interest rates and deposit behaviour. For the liquidity coverage ratio, the report clarifies when inflows from open reverse repos without a maturity date within 30 days can be recognised, building on Q&A 2024_7053 and setting out two approaches based on either a trigger event to terminate the transaction or historical experience. It also supplements the EBA’s 2019 guidance on identifying operational deposits, the operational deposit trade cycle and the material penalty for retail term deposits, reflecting recent observations in some banks that operational deposits increased while excess operational deposits decreased. For the net stable funding ratio, an addendum to the EBA’s 2023 report on interdependent assets and liabilities (issued under the Capital Requirements Regulation monitoring mandate) clarifies expectations for indirect client clearing activities where affiliated institutions, rather than an institutional protection scheme structure, are involved. The EBA will continue monitoring specific LCR and NSFR aspects given current circumstances and the interest rate environment and will further assess whether liquidity regulatory reporting needs to be amended or complemented.