On 15 March 2021, the European Banking Authority (EBA) published a report on the monitoring of liquidity coverage ratio (LCR) implementation in the EU. The report highlights areas in which further guidance is deemed useful for banks and Member State supervisors in order to foster a common understanding and harmonisation of the application of the liquidity standard across the EU, as well as to reduce some level playing field issues.
The report follows an earlier report that was published in July 2019 and pursues the same approach and objectives. In particular the report discusses the usage of liquidity buffers, guidance on unwinding mechanism waivers, recourse to central bank support and additional outflows from derivatives, in the context of a crisis, in particular in view of the COVID-19 pandemic. The report also provides guidance on the treatment of fiduciary deposits, LCR optimisation risk, interdependent inflows and outflows for LCR purposes, and the treatment of deposit guarantee scheme deposits.
The guidance provided in the report is not formally legally binding although the EBA expects banks and Member State competent authorities to follow it. It constitutes best practice and focuses on aspects where diverse approaches have been observed with a potential material impact.