Legal aspects of liquidity coverage ratio, net stable funding ratio and the internal liquidity adequacy assessment process
The Basel III accord of 2010 not only introduced new standards for capital adequacy, but also introduced the first harmonized international framework for liquidity management by banks. The liquidity management rules apply for European banks from 1 January 2014 as a reporting and calibration duty, and from 1 October 2015 the first liquidity standard, the Liquidity Coverage Ratio (“LCR”). The relevant provisions for the Commission Delegated Regulation with regard to LCR may be applied with using a phased in approach with “fully loaded” obligations from 1 January 2018. Apart from the very specific treasury managerial aspects of the LCR-Regulation, many legal topics are relevant for the interpretation too. The proper compliance with the LCR Regulation has a thorough impact on the definition of the terms and conditions to be entered into between banks and its customers, particularly in order to address expected liquidity outflows and assess predictability. Also from the liquid asset side, the regulations set forth in the LCR-framework for European banks are complex and contain certain choices that are debatable. Certainly, the preferential treatment of covered bonds as high quality liquid asset (HQLA) above securitisation positions has often been challenged by market participants. There are furthermore dependencies in the LCR-rules with the Deposit Guarantee Scheme regulations and the overall protection of retail deposits as one of the drivers to introduce new rules on liquidity management.
A further step in respect of introduction of quantitative liquidity management requirements, concerns the Net Stable Funding Ratio (“NFSR”)-rules that look to manage liquidity on the basis of a longer one-year horizon. Based on the EBA NFSR Report of 15 December 2015, rulemaking in Europe ends its last phase, whereas the United States adopted NFSR-rules in May 2016. The NFSR-rules equally have a significant impact on the shaping of the contractual relationship between the bank and its customers and particularly the interaction between LCR-rules and NFSR-rules requires proper coordination as regards the legal environment in which banks operate. Since the adoption and entry into force of CRD II of 2009, proper liquidity management is also subject to qualitative and organisational risk management requirements. Supervisors may request banks to comprise in the annual Pillar 2 exercise as regards capital adequacy, also the assessment of adequate liquidity in the so-called ILAAP process. This ILAAP-process is being calibrated to harmonize supervisory practices by the ECB as concerns significant banks and as regards all other Eurozone banks by developing common supervisory practices. EBA’s Guidelines on ICAAP and ILAAP information collected for SREP purposes of 3 November 2016 contribute to the streamlining of supervisory practices in Europe. The training course will provide for an elaborate analysis of these Guidelines too.
- Analysis of differences between Basel III’s Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
- Legal aspects and regulatory framework of the new liquidity management regime for banks
- Stress testing liquidity outflows and validating liquidity inflows
- Relationship with crisis management framework
- Relation with Deposit Guarantee Scheme regulations
- Differences in treatment covered bonds and securitisation positions
- Internal qualitative requirements and supervisory reporting (including ILAAP)
What you will learnThis course will:
- bring a close reading of the LCR Regulation and analyses the various topics concerning liquidity inflows and outflows;
- explore the dependencies of the LCR Regulation with the legislative framework for covered bonds, securitisation and deposit guarantee schemes
- analyse, in a separate close reading session, the EBA Guidelines on ICAAP and ILAAP information collected for SREP purposes
- address the forthcoming NFSR rules as well as the interaction of those rules with the LCR framework.
Meet the instructor
Bart P.M. Joosen is trained as civil law lawyer at Tilburg University, the Netherlands. He obtained his (equivalent to) LL.M degree in 1987. After completion of his academic study he was appointed as lecturer in the law faculty of Tilburg University in 1987 and he lectured company law and the law of groups of companies in the period 1987-1990. Concurrently he worked on a comparative law study on the Dutch and French legislation for bankruptcy of companies and was admitted in 1988 and 1989 as a fellow researcher to the Université de Paris I (Panthéon-Sorbonne). He successfully defended his dissertation on “Transfer of undertakings in bankruptcy” at Tilburg University and was promoted to doctor in law science (PhD) in 1998. After his time at University he first worked as in-house legal counsel at Philips Electronics in Eindhoven until 1992 after which he became active in private practice in Amsterdam. He works particularly for financial market clients.
His main areas of expertise are in the field of financial services supervision with a focus on micro-prudential supervision of banks and insurers (including in-depth Basel II/Basel III and Solvency II knowledge). His more recent work concerns the assessment of topics concerning systemic risk and systemically important institutions. He also works for investment firms and businesses active in payments, clearing and settlement services and infrastructures.
Besides working in private practice, Bart Joosen is Full Professor of Prudential Supervisory Law at the University of Amsterdam.
How the course will work
Total course length: between 12 and 15 hours.
A certificate of attendance will be provided to all participants after the course.
The course will introduce various topics concerning the regulatory environment by means of lectures presenting certain hypothesis and queries, each lecture ending with at least 15 minutes’ discussion among the participants moderated by the trainer. There will be some back ground literature made available to the course participants prior to the training.
On 16 February, from 6:00 PM, course participants will have the chance to take part in a guided tour of the private art collection of Ente Cassa di Risparmio di Firenze, which ranks among the most important collections held by any bank foundation. Located in a historical building in the heart of the city, the collection consists of masterpieces from antique to modern times by prominent artists including Giotto, Filippino Lippi, Giorgio Vasari and Primo Conti. More information here.
Participation is free of charge. Registrations for this activity will be collected shortly before the event.
All participants are welcome to attend the following two interventions by Professor Barry Eichengreen (University of California, Berkeley) taking place on 15 February at the European University Institute:
It is expected that the course participants have an excellent understanding of the provisions of the Capital Requirements Regulation (Regulation (EU) No 575/2013) related to the liquidity management framework and moderate understanding of the LCR Commission Delegated Regulation and of the Basel Committee Liquidity Management Framework of 2010.
Since content sharing technologies will be used during the lessons, participants are strongly suggested to bring their own laptops.
1500 € – Public Authorities (e.g. National Competent Authorities, Central Banks) and European Institutions*
2000€ – Private Sector*
850€ – Students (with certificate of studies)
The course fee covers coffee and lunch breaks. Travel and hotel costs are not included.
* In case of registration of 3 participants from the same institution or private company, a reduced fee is applied for each of them (€ 1000 public sector and 1300 € private sector), under the following conditions:
- the names of the 3 participants have to be communicated to firstname.lastname@example.org before registering
- the names of other registered people from the same institution cannot be communicated. It is upon your responsibility to get in touch with your HR division
- a single debit note will be issued for the 3 participants followed by one payment
- In case a course is cancelled, registered participants will receive the full refund.
- In case a course is moved to another date, registered participants may request a voucher to attend another FBF course.
- Registered participants who cancel their participation will receive a voucher to attend another FBF course.
For more details, please contact email@example.com
On arrival, participants will be provided with temporary wi-fi access for the whole duration of the course.
Reading materialRegistered participants can access the course materials on this page, using the password provided by the course secretariat.