On 24 July 2023, the European Banking Authority (EBA) published its report on the treatment of interdependent assets and liabilities in the net stable funding ratio (NSFR). The report assesses the conditions under which assets and liabilities can be treated as interdependent in the NSFR and the description of the list of activities that are considered to meet those conditions.
The EBA’s report, which has been prepared in accordance with its mandate under the Capital Requirements Regulation, provides only limited recommendations for the European Commission at this stage, which concern extendable maturity triggers for covered bonds and indirect derivatives client clearing activities.
The treatment of interdependent assets and liabilities is limited to transactions where no funding risk exists for the institution, and as such, the activities are effectively exempted from stable funding requirements in the calculation of the NSFR. In this context, the EBA analysed if the conditions and definitions were met and whether they ensure the absence of funding risk or any amendment to them is necessary.
In relation to covered bonds with an extendable maturity trigger, the EBA considers that the trigger must be observable in markets as an objective indicator where the extension of the maturity of the covered bond will be automatic once the specific trigger/threshold is reached. In relation to client clearing activities, the EBA recommends adding the case of indirect derivatives client clearing activities to the established direct activities to ensure the necessary safeguards apply.
The EBA notes that it will continue to monitor, as needed, other possible transactions that in the future might be reported by banks as interdependent assets and liabilities in the NSFR, in cooperation with competent authorities.