(1)

The Basel Committee on Banking Supervision has established international standards regarding the liquidity coverage ratio and liquidity risk monitoring tools (2) (BCBS standards).

(2)

In order to ensure effective oversight and application of the derogations provided for in Article 419(2) of Regulation (EU) No 575/2013 and effective monitoring of institutions' compliance with the requirements applicable to those derogations, in line with the BCBS standards, institutions should notify competent authorities when they intend to apply those derogations or when they intend to make a material change to the application of those derogations.

(3)

The BCBS standards establish guiding principles for supervisors in jurisdictions with insufficient high quality liquid assets. In line with Principle 3 of those guiding principles for supervisors, before applying any derogation, in order to demonstrate justified needs, institutions should take reasonable steps, to the extent practicable, to ensure that high quality liquid assets are used and reduce their overall level of liquidity risk to improve compliance with the liquidity coverage requirement.

(4)

In line with Principles 1 and 4 of the guiding principles for supervisors set out in the BCBS standards, it is necessary to ensure that institutions do not apply the derogations as an economic choice that maximises their profits through the selection of alternative high quality liquid assets based primarily on yield considerations. In line with those principles it is also necessary to establish a mechanism for limiting the use of the derogations in order to mitigate risks of non-performance of the alternative assets. Taking into account the BCBS standards it is also necessary to provide for appropriate haircuts for the purposes of the derogation provided for in Article 419(2)(a) of Regulation (EU) No 575/2013 and to establish rules on the fee for the purposes of the derogation provided for in Article 419(2)(b) of that Regulation. In particular, as regards the derogation provided for in Article 419(2)(b) of Regulation (EU) No 575/2013, in order to ensure that the price paid by an institution for a central bank credit line is fair, the fee should be composed of two elements. The first should offset the higher yield earned on the assets kept to secure the credit line in order to ensure that the pricing reflects benefits which accrue independently of the amount currently drawn. The second should reflect the amount of the credit line drawn down.

(5)

In line with Principle 2 of the guiding principles for supervisors set out in the BCBS standards, the use of the derogations should be limited for all institutions with exposures in the relevant currency. Pursuant to Article 419(3) of Regulation (EU) No 575/2013, the derogations applied are to be inversely proportional to the availability of the relevant assets. For those reasons, the use of the derogations should be limited to a percentage of a credit institution's net liquidity outflows in the relevant currency which corresponds to the relevant shortage in liquid assets in that currency.

(6)

This Regulation is based on the draft regulatory technical standards submitted by the European Banking Authority (EBA) to the Commission.

(7)

EBA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (3).

(8)

In accordance with the procedure in Article 15 of Regulation (EU) No 1093/2010, the Commission has endorsed with amendments the draft regulatory standard submitted by EBA after having sent the draft regulatory standard back to EBA explaining the reasons for the amendments. The EBA provided a formal opinion supporting those amendments,