8.5. Summary of findings, scoring and supervisory measures

Following the above assessment, competent authorities should form a view on the institution’s liquidity and funding risks and the capacity of the institutions’ liquidity resources to cover/mitigate these. This view should be reflected in a summary of findings, accompanied by a liquidity and funding adequacy score based on the considerations specified in table 17. The liquidity and funding adequacy score should reflect the view of competent authorities on whether the existing liquidity resources provide appropriate coverage of the liquidity and funding risks. Competent authorities may consider the use of intermediate scores for liquidity and funding risk where deemed relevant.

In setting the liquidity and funding adequacy score, competent authorities should, where applicable, consider the score of the liquidity overall recovery capacity in recovery planning (weak, adequate with potential room for improvement, satisfactory) as specified in paragraphs 41-43 of the EBA Guidelines on overall recovery capacity in recovery planning⁵⁷ . The consideration of the overall recovery capacity score in the context of liquidity adequacy is especially relevant in case of a ‘weak’ overall recovery capacity score for liquidity.

Table 17. Supervisory considerations for assigning a liquidity and funding adequacy score

⁵⁷ EBA/GL/2023/06

Following the liquidity and funding adequacy scoring of section 8.5, competent authorities should determine whether it is necessary to set specific liquidity and funding requirements to cover risks to liquidity and funding to which an institution is or might be exposed.

The next table provides a non-exhaustive list of qualitative and quantitative supervisory measures that competent authorities may use in case a specific deficiency is identified. Competent authorities may apply additional supervisory measures (including quantitative measures in accordance with Article 104(1)(a) of Directive 2014/36/EU or a combination of them if these are deemed more appropriate to address the identified deficiencies.

Where competent authorities determine that quantitative measures may be necessary, they should refer to the additional guidance in the subsequent section on benchmarking and setting quantitative liquidity and funding measures.

It is relevant to note that part of the measures mentioned in table 18 are of a qualitative nature. Where fundamental weaknesses arise, particularly in terms of management of liquidity and funding, qualitative measures should be prioritised, where possible.

Table 18. Potential and non-exhaustive supervisory measures for liquidity and funding risk

Potential supervisory measures for competent authorities in accordance with Articles 102, 104(1), points (b), (e), (f), (j), (k), (i), and (n) and Article 105 of Directive 2013/36/EU, Article 8 of Commission Delegated Regulation (EU) 2015/61, and Article 428b(5) of Regulation (EU) No 575/2013 A. require institutions to hold an LCR higher than the regulatory minimum, of such a size that shortcomings identified are sufficiently mitigated; B. require institutions to apply a minimum survival period of such length that identified shortcomings are sufficiently mitigated; Potential supervisory measures for competent authorities in accordance with Articles 102, 104(1), points (b), (e), (f), (j), (k), (i), and (n) and Article 105 of Directive 2013/36/EU, Article 8 of Commission Delegated Regulation (EU) 2015/61, and Article 428b(5) of Regulation (EU) No 575/2013 C. require institutions to hold a minimum total amount of liquid assets or counterbalancing capacity, of such a size that identified shortcomings are sufficiently mitigated; D. require institutions to hold a NSFR higher than the regulatory minimum, of such a size that shortcomings identified are sufficiently mitigated; E. require institutions to hold a minimum total amount of available stable funding, of such a size that identified shortcomings are sufficiently mitigated; F. impose specific liquidity requirements, including restrictions on maturity mismatches between assets and liabilities; G. impose administrative penalties or other administrative measures, including prudential charges; H. impose requirements on the concentration of the liquid assets held, including:

• - requirements for the composition of the institution’s liquid-assets profile in respect of counterparties, currency; and/or
• - caps, limits or restrictions on funding concentrations. I. impose restrictions on short-term contractual or behavioural maturity mismatches between assets and liabilities, including:
• - limits on maturity mismatches (in specific time buckets) between assets and liabilities;
• - limits on minimum survival periods; and/or
• - limits on dependency on certain short-term funding sources, such as money market funding.

J. impose additional or more frequent reporting requirements on liquidity positions, including:

• - the frequency of regulatory reporting on LCR; and/or
• - the frequency and granularity of other liquidity reports, such as ‘additional monitoring metrics’. K. require action to be taken to address deficiencies identified with regard to the institution’s ability to identify, measure, monitor and control liquidity risk, by means including:
• - enhancing its stress testing capacity to improve its ability to identify and quantify material sources of liquidity risk to the institution;
• - enhancing its ability to monetise its liquid assets;
• - enhancing its liquidity contingency plan and liquidity early warning indicators framework; and/or
• - enhancing reporting of liquidity management information to the institution’s management body and senior management. L. require action to be taken to amend the institution’s funding profile, including:
• - reducing its dependency on certain (potentially volatile) funding markets,, such as wholesale funding markets, such as wholesale funding;
• - reducing the concentration of its funding profile with respect to counterparties, peaks in the long-term maturity profile, (mismatches in) currencies, etc.; and/or
• - reducing the amount of its encumbered assets, potentially differentiating between total encumbrance and overcollateralisation (e.g. for covered bonds, margin calls). M. Require additional or more frequent reporting on the institution’s funding positions, including:
• - increased frequency of regulatory reporting relevant to the monitoring of the funding profile (such as the NSFR report and ‘additional monitoring metrics’); and/or
• - increased frequency of reporting on the institution’s funding plan to the supervisors. N. Require actions to be taken to address deficiencies identified with regard to the institution’s control of funding risk, including:
• - requiring actions to be taken to address deficiencies identified with regard to the institution’s control of funding risk, including:
• - enhancing reporting on funding risk to the institution’s management body and senior management;
• - restating or enhancing the funding plan; and/or
• - placing limits on its risk appetite;
• - enhancing the institution’s stress testing capabilities by means including requiring the institution to cover a longer stress period.

When setting structural, long-term supervisory requirements, competent authorities should consider the need for additional short/medium-term liquidity and/or own fund requirements as an interim solution to mitigate the risks that persist while the structural requirements produce the desired effects.

Where competent authorities conclude that there is a high risk that the institution’s cost of funding will increase notably, they should consider requesting changes to the funding structure to mitigate the funding cost risk, or even own funds measures (as covered in Title 7) to compensate for the P&L impact if the institution cannot pass the increased costs of funding to its customer.