7.3 Information on strategy regarding liquidity buffers and collateral management

On liquidity buffers and collateral management strategy, competent authorities should ensure that they receive from institutions the following:

• a. their methodology for determining the internal minimum size of the liquidity buffer, including the institutions’ definition of liquid assets, the criteria they apply for determining the liquidity value of liquid assets and the constraints relating to concentration and other risk characteristics of the liquid assets;
• b. policy document on collateral management, including principles in relation to the location and transferability of collateral as well as to their role in relation to meeting minimum prudential requirements;
• c. policy document on asset encumbrance, including principles for measuring and monitoring both encumbered and unencumbered assets and linking the limit and control framework regarding asset encumbrance to the institution’s (liquidity and funding) risk appetite;
• d. principles for testing the assumptions relating to the liquidity value of, and time to sell or repo, assets included in the liquid asset buffer;
• e. policy document on liquidity concentration risk in the liquidity buffer, including principles for measuring and monitoring of any potential loss of available liquidity due to this concentration. 7.3.2 Operational documentation

On evidencing implementation of the strategy regarding liquidity buffers and collateral management, competent authorities should ensure that they receive from institutions the following:

• a. quantification of the minimum volume of liquid assets considered adequate to meet internal requirements;
• b. quantification of the current liquidity buffer, including its distribution over products, currencies, counterparties, regions/group entities, etc.;
• c. description of differences between the definitions of the elements of the ‘counterbalancing capacity’ and ‘high quality liquid assets’ according to Commission Delegated Regulation (EU) No 2015/61 including reasoning to show that the counterbalancing capacity is capable of covering risks not included under Regulation (EU) No 575/2013;
• d. projections of the development of the internally required minimum volume of liquid assets and available liquid assets over appropriate time horizons under both ‘business as usual’ and stressed conditions;
• e. quantitative overview and analysis of current and projected levels of asset encumbrance, including details of encumbered as well as unencumbered assets that could be used for generating liquidity;
• f. assessment of the time it takes to convert liquid assets into directly usable liquidity, taking into account legal, operational or prudential impediments to the use of liquid assets to cover cash outflows;
• g. analysis of the testing of assumptions in relation to the liquidity value of, and time to sell or repo, assets included in the liquid asset buffer.