| (d) | Matters related to the calculation of a bank's total expected cash outflows |
Based on the relevant requirements specified in this subregulation (12), including, in particular, the categories of funding and other liabilities or potential liabilities, and run-off, outflow or drawdown factors, specified below, a bank shall continuously calculate its expected or potential total cash outflows, for which purposes—
| (i) | retail deposits mean deposits placed with the bank by a natural person, which retail deposits shall include all relevant demand deposits and term deposits, provided that— |
| (A) | deposits received from legal entities, sole proprietorships or partnerships shall be included in the bank's wholesale deposit category; |
| (B) | the bank shall divide its retail deposits between "stable" and "less stable" retail deposits; |
| (C) | in respect of the aforesaid stable retail deposits, the bank shall determine the amount of deposits that is fully insured as envisaged in item (E) below in terms of an effective deposit insurance scheme or by a public guarantee that provides equivalent protection as envisaged in item (D) below, and where— |
| (i) | the depositors have other established relationships with the bank that make deposit withdrawal highly unlikely; or |
| (ii) | the deposits are in transactional accounts, such as accounts where salaries are automatically deposited, |
and the relevant amount related to any other stable retail deposits, whereafter the bank shall determine the relevant run-off factor in accordance with the relevant requirements specified in item (F) below.
Based on the aforesaid, the mere existence of deposit insurance alone shall not be sufficient motivation to classify a deposit as "stable".
| (D) | an effective deposit insurance scheme as envisaged in this subregulation (12) means a scheme— |
| (i) | that guarantees that it has the ability to make prompt payouts; and |
| (ii) | for which the coverage is clearly defined; and |
| (iii) | in respect of which public awareness is high. |
Provided that—
| (aa) | the deposit insurer in an effective deposit insurance scheme shall have formal legal powers to fulfil its mandate and shall be operationally independent, transparent and accountable; |
| (bb) | an explicit and legally binding sovereign deposit guarantee that effectively functions as deposit insurance may be regarded as an effective deposit insurance scheme; |
| (E) | fully insured as envisaged in item (C) above means that one hundred per cent of the relevant deposit amount, up to the relevant deposit insurance limit, is covered by an effective deposit insurance scheme, that is— |
| (i) | deposit balances up to the deposit insurance limit may be treated as "fully insured", even if the depositor has a balance in excess of the deposit insurance limit, provided that— |
| (aa) | one hundred per cent of the relevant deposit amount, up to the relevant deposit insurance limit, is covered by an effective deposit insurance scheme; |
| (bb) | the bank shall treat any amount in excess of the said deposit insurance limit as "less stable"; |
| (ii) | when a depositor, for example, has a deposit of R150 000 that is covered by a deposit insurance scheme in terms of which one hundred per cent of the deposited amount is covered, up to a limit of R100 000, that is, the depositor would receive at least R100 000 from the deposit insurance scheme when the bank is unable to repay the deposit, R100 000 would be regarded as "fully insured" and treated as stable deposits, while the remaining R50 000 shall be treated as part of the less stable deposit category; |
| (iii) | when the deposit insurance scheme covers only a percentage of the funds, such as ninety per cent of the deposit amount, but not one hundred per cent, up to a limit of, for example, R100 000, the bank shall classify the entire deposit of R150 000 as less stable; |
[Regulation 26(12)(d)(i)(E) substituted by regulation 10(d) of Notice No. R. 297, GG 40002, dated 20 May 2016]
| (F) | when the retail deposit in question complies with the relevant criteria specified for stable deposits in items (C) to (E) above, and |
| (i) | the deposit insurance scheme is based on a system of prefunding via the periodic collection of levies on banks with insured deposits; and |
| (ii) | the deposit insurance scheme has adequate means of ensuring ready access to additional funding in the event of a large call on its reserves, such as an explicit and legally binding guarantee from the government, or a standing authority to borrow from the government; and |
| (iii) | access to insured deposits is available to depositors in a short period of time, that is, not more than seven business days once the deposit insurance scheme is triggered; and |
| (iv) | the bank complies with such further conditions or requirements as may be specified in writing by the Registrar, |
the bank may apply to such stable retail deposits a run-off factor of no less than three per cent, provided that, unless specifically otherwise stated, the bank shall apply to the relevant amount of any stable retail deposit that does not comply with all the aforesaid specified criteria a run-off factor of not less than five per cent;
| (G) | when the bank is unable to readily identify the retail deposits that qualify as "stable" retail deposits, the bank shall allocate the relevant full amount to the "less stable" retail deposits category; |
| (H) | in respect of the aforesaid less stable retail deposits, that is, for example, deposits that are not covered by an effective deposit insurance scheme or sovereign deposit guarantee, high-value deposits, deposits from sophisticated or high net worth individuals, deposits that can be withdrawn quickly, such as internet deposits, and foreign currency deposits, the bank shall apply a run-off factor of not less than ten per cent; |
| (I) | in order to more accurately capture depositor behaviour in a period of stress, the Registrar may require a bank in writing— |
| (i) | to add further reporting categories of deposits with specified run-off factors; or |
| (ii) | to apply a run-off factor higher than the percentages specified hereinbefore; |
| (ii) | fixed or term retail deposits with a residual maturity or withdrawal notice period of more than 30 days may be excluded from the bank's calculation of total expected cash outflow for LCR, provided that— |
| (A) | the depositor shall have no legal right to withdraw the deposit within the said 30-day horizon of the LCR; |
| (B) | subject to such conditions as may be specified in writing by the Registrar, and the bank's sole discretion, the bank may allow a depositor to early withdraw the deposit, provided that— |
| (i) | the withdrawal shall be subject to a penalty substantially higher than the loss of interest; |
| (ii) | when the bank allows early withdrawal without applying the aforesaid penalty or despite the clause that states the depositor has no legal right to withdraw, the bank shall for purposes of calculating its LCR regard the entire category of those funds as demand deposits, regardless of the remaining term to maturity; |
| (C) | when a portion of the said fixed or term deposits can be withdrawn without incurring the penalty referred to in item (B) above, the bank shall treat that portion as demand deposits, and the remaining balance of the deposits as term deposits; |
| (D) | the Registrar may specify in writing exceptional circumstances that shall for purposes of these Regulations be regarded as hardship, under which exceptional circumstances a term deposit may be withdrawn by the depositor without the bank being required to change the treatment of the entire pool of deposits, as stated hereinbefore; |
[Regulation 26(12)(d)(ii)(D) substituted by regulation 10(e) of Notice No. R. 297, GG 40002, dated 20 May 2016]
| (iii) | unsecured wholesale funding, in respect of which the bank shall apply the relevant run-off factors specified in subparagraphs (iv) to (ix) below— |
| (i) | liabilities and general obligations that are raised from non-natural persons, such as legal entities, including sole proprietorships and partnerships, and that are not collateralised by legal rights to specifically designated assets owned by the borrowing institution in the case of bankruptcy, insolvency, liquidation or resolution; |
| (ii) | all relevant funding that is callable or has its earliest possible contractual maturity date within the LCR's horizon of 30 days, such as maturing term deposits and unsecured debt securities, as well as funding with an undetermined maturity; |
| (iii) | all relevant funding with options that are exercisable at the investor's discretion within the LCR's horizon of 30 calendar days; |
| (iv) | all relevant liabilities in respect of which the market is likely to expect redemption before the relevant legal final maturity date; |
| (i) | wholesale funding that is callable by a fund provider subject to a contractually defined and binding notice period beyond the 30-day horizon; |
| (ii) | obligations related to derivative instruments or contracts; |
| (iv) | the bank shall, in respect of unsecured wholesale funding provided by small business customers, that is, deposits and other extensions of funds made by non-financial small business customers that are managed as retail deposits or exposures, and which are generally considered as having liquidity risk characteristics similar to retail accounts, follow an approach similar to the approach specified above for retail deposits, that is, the bank shall, based on the relevant criteria specified hereinbefore for retail deposits, distinguish between— |
| (A) | a stable portion of unsecured wholesale funding provided by small business customers, in respect of which the bank shall apply a run-off factor of not less than five per cent; and |
| (B) | a less stable portion of unsecured wholesale funding provided by small business customers, in respect of which the bank shall apply a run-off factor of not less than ten per cent, |
Provided that—
| (i) | this category of unsecured wholesale funding provided by non-financial small business customers shall only include small business customers in respect of which the total aggregate amount of funding raised from a customer and its relevant associates or affiliates, on a gross consolidated basis, is less than such an amount as may be specified in writing by the Registrar from time to time; |
[Proviso (i) of regulation 26(12)(d)(iv) substituted by regulation 10(f) of Notice No. R. 297, GG 40002, dated 20 May 2016]
| (ii) | term deposits from small business customers shall be treated in accordance with the relevant requirements specified hereinbefore for term retail deposits; |
| (iii) | the same principles and requirements that apply to small business customers envisaged in regulation 23(6)(b) of these Regulations shall apply mutatis mutandis to small business customers for purposes of this subregulation (12), including, in particular— |
| (aa) | the bank shall treat such deposits from small business customers in its internal risk management systems consistently over time and in a manner similar to other retail deposits; and |
| (bb) | such deposits shall not be managed individually, in a manner comparable to larger corporate deposits; |
| (v) | the bank may in respect of unsecured wholesale funding consisting of operational deposits generated by clearing, custody or cash management activities, as defined and envisaged in subparagraph (vi) below, placed at or deposited with the bank by financial or non-financial customers to facilitate their access and ability to use payment and settlement systems, or to otherwise make payments, apply a run-off factor of not less than twenty five per cent, provided that— |
| (A) | in order to ensure the appropriate treatment by the bank of operational deposits and activities as envisaged in this subparagraph (v), including any potential concentration risk related thereto, the bank shall obtain the prior written approval of and comply with such further requirements or conditions as may be specified in writing by the Registrar in respect of any such operational deposits and activities; |
| (B) | the relevant financial or non-financial customer— |
| (i) | shall have a substantive dependency with the bank, and the relevant deposit shall be required for the aforesaid activities; |
| (ii) | shall be reliant on the bank to perform the aforesaid services as an independent third party intermediary in order to fulfil its normal banking activities over the next 30 days, that is, the bank shall not treat a deposit in accordance with the provisions of this subparagraph (v) if the bank is aware that the customer has adequate back-up arrangements; |
| (C) | the aforesaid clearing, custody or cash management activities and the related services shall be provided in terms of a legally binding agreement to institutional customers, and the termination of such agreements shall be subject to either a notice period of at least 30 days or significant switching costs, such as those related to transaction, information technology, early termination or legal costs, to be borne by that relevant customer should the operational deposit be moved before the expiry of the said 30 day period; |
| (D) | the operational deposits generated by the aforesaid activities— |
| (i) | shall be by-products of the underlying services provided by the bank, and not sought out in the wholesale market in the sole interest of offering interest income; |
| (ii) | shall be held in specifically designated accounts and priced without giving any economic incentive to the customer to leave any excess funds on these accounts, which economic incentive does not relate only to the payment of market interest rates; |
| (iii) | may be non-interest bearing when interest rates in a particular jurisdiction are close to zero; |
| (E) | the bank shall have in place sufficiently robust policies, processes and procedures to identify any excess deposits that have to be excluded from the provisions of this subparagraph (v), |
| (i) | which assessments shall be conducted at a sufficiently granular level to adequately assess the risk of withdrawal in an idiosyncratic stress; |
| (ii) | which processes and procedures shall be sufficiently robust— |
| (aa) | to take into account all relevant factors, such as the likelihood that wholesale customers have above average balances in advance of specific payment needs; |
| (bb) | to duly consider appropriate indicators, such as ratios of account balances to payment or settlement volumes or to assets under custody, to identify those customers that are not actively managing account balances efficiently; |
| (F) | when the relevant deposits arise from correspondent banking, that is, an arrangement in terms of which one bank (correspondent) holds deposits owned by another bank (respondent) and provides payment and other services in order to settle foreign currency transactions, such as nostro and vostro accounts used to settle transactions in a currency other than the domestic currency of the respondent bank for the provision of clearing and settlement of payments, the bank shall, for purposes of determining the relevant run-off factor, treat the relevant deposit as if there was no operational relationship or activity; |
| (G) | when the relevant deposits arise from the provision of prime brokerage services, that is, a package of services offered to large active investors, particularly institutional hedge funds, which services usually include— |
| (i) | clearing, settlement and custody; |
| (ii) | consolidated reporting; |
| (iii) | margin, repo or synthetic financing; |
| (v) | capital introduction; and |
the bank shall, for purposes of determining the relevant run-off factor, treat the relevant deposits as if there was no operational relationship or activity;
| (H) | in respect of any portion of the operational deposits generated by clearing, custody or cash management activities that is fully covered by deposit insurance, as envisaged in subparagraph (i) above, the bank may apply a run-off factor equivalent to the run-off factor that applies to "stable" retail deposits; |
| (I) | any excess balance that may be withdrawn and still leave sufficient funds to fulfil the required clearing, custody or cash management activities— |
| (i) | shall not qualify for the aforesaid run-off factor of not less than twenty five per cent envisaged in this subparagraph (v), that is, only that portion of the deposit with the service provider bank that is proven to serve the relevant customer's operational needs shall qualify as stable, as envisaged in this subparagraph (v); and |
| (ii) | shall be included in the relevant category related to non-operational deposits, |
Provided that when a bank is unable to determine the relevant excess amount of the balance envisaged hereinbefore, the bank shall regard the entire deposit to be in excess to requirement, and as such the entire deposit shall be considered non-operational;
| (J) | any relevant balance related to an operational deposit envisaged in this subparagraph (v) shall be subject to a zero per cent inflow assumption for the depositing bank, as set out in paragraph (e) below, given the fact that the said deposits are required for operational reasons, and are therefore not available to the depositing bank to repay any other outflow; |
| (vi) | in respect of unsecured wholesale funding received from financial and non-financial wholesale customers with specific operational relationships as envisaged in subparagraph (v) above, |
| (A) | a clearing relationship means a service arrangement that enables customers to transfer funds or securities indirectly through direct participants in domestic settlement systems to final recipients, which services are limited to— |
| (i) | transmission, reconciliation and confirmation of payment orders; |
| (ii) | daylight overdraft, overnight financing and maintenance of post-settlement balances; and |
| (iii) | determination of intra-day and final settlement positions; |
| (B) | a custody relationship means the provision of safekeeping, reporting, processing of assets and/or the facilitation of the operational and administrative elements of related activities on behalf of customers in the process of their transacting and retaining financial assets, which services are limited to— |
| (i) | the settlement of securities transactions; |
| (ii) | the transfer of contractual payments; |
| (iii) | the processing of collateral; |
| (iv) | the provision of custody related cash management services; |
| (v) | the receipt of dividends and other income; |
| (vi) | client subscriptions and redemptions; |
| (vii) | asset and corporate trust servicing, treasury, escrow, funds transfer, stock transfer and agency services, including payment and settlement services, and depository receipts, |
but which custody related services shall in no case include any correspondent banking related services, as envisaged and described hereinbefore;
| (C) | a cash management relationship means the provision of cash management and related services to customers, that is, the provision of cash management services related to products and services provided to a customer to manage its cash flows, assets and liabilities, and conduct financial transactions necessary to the customer's ongoing operations, which services are limited to— |
| (ii) | collection and aggregation of funds; |
| (iii) | payroll administration; and |
| (iv) | control over the disbursement of funds; |
| (vii) | subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, in respect of unsecured wholesale funding related to an institutional network of cooperative banks or similar institutions, that is, a group of legally autonomous banks or similar institutions with a statutory framework of cooperation with common strategic focus and brand where specific functions are performed by central institutions or specialised service providers, the relevant central institution or specialised central service providers may apply a run-off rate of twenty five per cent in respect of deposits of member institutions that are placed— |
| (A) | due to statutory minimum deposit requirements, which are registered at the relevant regulators; or |
| (B) | in the context of common task sharing and legal, statutory or contractual arrangements, |
Provided that—
| (i) | both the bank that received the funds and the bank that deposited the funds shall participate in the same institutional network's mutual protection scheme against illiquidity and insolvency of its members; |
| (ii) | the depositing bank or institution shall apply a zero per cent inflow assumption in respect of the relevant deposited funds, since the funds are considered to remain with the relevant centralised institution; |
| (iii) | any relevant correspondent banking activities shall be excluded from this category and shall be subject to a run-off factor of one hundred per cent; |
| (iv) | funds placed with a central institution or specialised service provider for any reason other than— |
| (aa) | the specific reasons specified in this subparagraph (vii); or |
| (bb) | for operational functions of clearing, custody, or cash management as envisaged in subparagraphs (v) and (vi) above, |
shall be subject to a run-off factor of one hundred per cent;
| (viii) | in respect of any unsecured wholesale funding— |
| (A) | from non-financial corporate customers, other than small business customers as envisaged hereinbefore; |
| (B) | from domestic and foreign sovereign, central bank or public sector entities; or |
| (C) | from multilateral development banks, that are not specifically held for operational purposes as envisaged hereinbefore, the bank shall apply a run-off factor— |
| (i) | of twenty per cent when the entire amount of the relevant deposit or funding is fully covered by an effective deposit insurance scheme or by a public guarantee that provides equivalent protection; or |
| (ii) | of forty per cent in respect of any of the aforesaid unsecured wholesale funding other than the fully covered deposits or funding envisaged in subitem (i) above; |
| (ix) | in respect of any unsecured wholesale deposits or other funding from institutions or persons other than the deposits and funding from institutions or persons specified hereinbefore, including— |
| (A) | any deposits or funds received from all relevant— |
| (iii) | insurance companies; |
| (iv) | fiduciaries, that is, any legal entity that is authorized to manage assets on behalf of a third party, including all relevant asset management entities such as pension funds and other collective investment vehicles; |
| (v) | beneficiaries, that is, any legal entity that receives, or may become eligible to receive, benefits under a will, insurance policy, retirement plan, annuity, trust, or any other relevant contract; |
| (vi) | conduits and/or special-purpose entities or vehicles; and |
(vii) any affiliated entities of the bank,
| (B) | all relevant notes, bonds and other debt securities issued by the bank, regardless of the holder, unless the bond was sold exclusively in the retail market and held in a retail account or small business customer account treated as retail as envisaged in subparagraph (iv) above, in which case the instrument may be treated in accordance with the relevant requirements specified hereinbefore that relate to the retail deposit category or small business customer deposit category, provided that in order for the relevant amount to be treated as a retail or small business customer account, the bank shall ensure that appropriate limitations are in place to ensure that the said instruments cannot be bought and held by persons other than retail or small business customers, that is, it will not be sufficient to merely design and market the debt instruments to retail or small business customers, |
the bank shall apply a run-off factor of one hundred per cent;
| (x) | the bank shall consider any customer cash balance arising from the provision of prime brokerage services, including but not limited to the cash arising from prime brokerage services envisaged in subparagraph (vi) above, separately from any relevant required segregated balances related to a client protection regime or arrangement that may be imposed in terms of the relevant regulatory framework or requirements of any relevant supervisor, and such balances shall not be netted off against any other relevant customer expsure specified in this subregulation (12), provided that any relevant offsetting balance held in a segregated account shall be treated as an inflow in terms of the relevant requirements specified in paragraph (e) below, and shall be excluded from the bank's relevant portfolio of high quality liquid assets; |
| (xi) | secured funding means those liabilities and general obligations that are collateralised by legal rights to specifically designated assets owned by the borrowing institution in the case of bankruptcy, insolvency, liquidation or resolution, provided that for purposes of the calculation of the bank's LCR— |
| (A) | the bank shall assume that its ability to continue to transact repurchase agreements, resale agreements and any other relevant securities financing transactions is limited to transactions backed by specified high-quality liquid assets or specified counterparties; |
| (B) | the bank shall treat collateral swaps and/or similar transactions as repurchase or resale agreements; |
| (C) | the bank shall treat any collateral lent to its customers to effect short positions as secured funding, for which purposes— |
| (i) | a customer short position shall include any transaction where the bank's customer sells a security it does not own, and the bank subsequently obtains the same security from internal or external sources to make delivery into the sale; and |
| (ii) | internal sources shall include the bank's own inventory of collateral as well as rehypothecatable collateral held in other customer margin accounts; and |
| (iii) | external sources shall include any collateral obtained through a securities borrowing, resale or other similar transaction; |
| (D) | in respect of all outstanding secured funding transactions with maturities within the envisaged 30 calendar day stress horizon, including any relevant customer short position with no specified contractual maturity, the relevant calculated amount of outflow shall be based on the amount of funds raised through the relevant transaction and not the value of the underlying collateral, and the bank— |
| (i) | shall apply a zero per cent reduction in funding availability related to maturing transactions secured by level one high-quality liquid assets or any maturing secured funding transaction with the Reserve Bank; |
| (ii) | shall in respect of maturing transactions secured by level two high-quality liquid assets apply a reduction in funding availability equivalent to the relevant haircuts specified in these Regulations, that is, the bank shall— |
| (aa) | apply a fifteen per cent reduction in funding availability related to maturing transactions secured by level 2A high quality liquid assets, that is, level two high quality liquid assets other than level 2B high quality liquid assets; |
| (bb) | in recognition that the Central Government of the RSA, multilateral development banks, or public sector entities that qualify for a risk weight of twenty per cent or lower in terms of the Standardised Approach for the measurement of the bank's exposure to credit risk in terms of the provisions of regulation 23(8) of these Regulations are unlikely to withdraw secured funding from the bank during a time of market-wide stress, apply a twenty five per cent reduction in funding availability related to maturing transactions with or secured by instruments of the aforesaid persons, entities or institutions, other than instruments or assets qualifying as level one or level 2A high quality liquid assets; |
| (cc) | apply a twenty five per cent or such a higher percentage as may be specified in writing by the Registrar, reduction in funding availability related to maturing transactions secured by residential mortgage-backed securities qualifying as level 2B high quality liquid assets; |
| (dd) | apply a fifty per cent or such a higher percentage as may be specified in writing by the Registrar, reduction in funding availability related to maturing transactions secured by level 2B high quality liquid assets other than any level 2B high quality liquid assets already specified hereinbefore; |
| (iii) | shall apply a one hundred per cent reduction in funding availability related to all other relevant maturing transactions, including any relevant transaction in terms of which the bank accommodated customers' short positions with the bank's own long inventory; |
| (E) | the bank shall, based on the relevant requirements specified in item (D) above, read with the provisions of this item (E), add to its expected cash outflows the relevant amounts specified in table 1 below: |
Table 1
Outstanding maturing secured funding
|
Amount to add to cash outflows
|
Secured by level one high-quality liquid assets or the Reserve Bank
|
0%
|
Secured by level 2A high-quality liquid assets, that is, level two high-quality liquid assets other than level 2B high-quality liquid assets
|
15%
|
Secured funding transactions with Central Government of RSA, multilateral development banks or public sector entities that are risk weighted at 20% or lower, and not secured by level one or level 2A high-quality liquid assets
|
25%
|
Secured by residential mortgage-backed securities (RMBS), qualifying as level 2B high-quality liquid assets
|
25%
|
Secured by any asset or instrument qualifying as level 2B high-quality liquid assets other level 2B high-quality liquid assets already specified hereinbefore
|
50%
|
All others
|
100%
|
| (xii) | the bank shall apply a run-off factor of one hundred per cent in respect of the sum of the relevant net derivative cash outflow amounts resulting from expected contractual derivative cash inflows and outflows, provided that— |
| (i) | shall, based on and in accordance with its existing valuation methodologies, calculate the relevant expected contractual cash inflow and outflow amounts related to its derivative instruments, contracts or transactions; |
| (ii) | may calculate the said cash inflow and outflow amounts on a net basis per counterparty when the bank has in place a valid master netting agreement with that counterparty; |
| (iii) | shall exclude from the aforesaid calculation any liquidity requirements resulting from increased collateral needs due to market value movements or falls in the value of collateral posted; |
| (iv) | shall assume that options that are 'in the money' to the option buyer will be exercised; |
| (B) | when derivative payments are collateralised by high-quality liquid assets and the bank is legally entitled and operationally capable to re-use the collateral in new cash raising transactions once the collateral is received, the bank shall calculate cash outflows net of any corresponding cash or collateral inflows that will result from the relevant contractual obligations for cash or collateral to be provided to the bank; |
| (C) | the bank shall in no case double count any relevant amount of liquidity inflow or outflow; |
| (xiii) | the bank shall apply a run-off factor of one hundred per cent of the relevant amount of collateral that will have to be posted for, or contractual cash outflows associated with, any downgrade up to and including a 3-notch downgrade by an eligible institution, that is, for each relevant contract or transaction with "downgrade triggers", the bank shall assume that one hundred per cent of the additionally required collateral shall be posted or the cash outflow shall occur for any downgrade up to and including a 3-notch downgrade of the bank's relevant long-term credit rating, provided that— |
| (A) | the bank shall assume that triggers linked to the bank's short-term rating shall be triggered at the appropriate or corresponding long-term rating, in accordance with the relevant published ratings criteria; |
| (B) | the bank shall ensure that it has in place sufficiently robust policies, processes and procedures to ensure that the impact of the downgrade also takes into account the impact on all relevant types of margin collateral and contractual triggers which change rehypothecation rights for non-segregated collateral; |
| (xiv) | the bank shall apply a run-off factor of twenty per cent of the value of level two high-quality liquid assets posted or pledged as collateral to cover a potential loss of market value in respect of derivative or other relevant transactions, that is, a bank posting collateral other than level one high-quality liquid assets to cover any relevant mark-to-market exposure shall add to the relevant stock of required high-quality liquid assets twenty per cent of the value of all such level two high-quality liquid assets, net of collateral received on a counterparty basis, provided that— |
| (A) | the aforesaid collateral received shall not be subject to restrictions on reuse or rehypothecation; |
| (B) | the bank shall calculate the said twenty per cent based on the relevant notional amount required to be posted as collateral after any other relevant haircuts have been applied; |
| (C) | any collateral maintained in a segregated margin account shall only be used to offset outflows that are associated with payments that are eligible to be offset from that same account; |
| (xv) | the bank shall apply an outflow factor of one hundred per cent in respect of any non-segregated collateral held by the bank that may contractually be called or recalled by the relevant counterparty because the collateral is in excess of the counterparty's current collateral requirements; |
| (xvi) | the bank shall apply an outflow factor of one hundred per cent in respect of any contractually required collateral on transactions for which the counterparty has not yet demanded the collateral be posted; |
| (xvii) | the bank shall apply an outflow factor of one hundred per cent in respect of the amount of collateral qualifying as high-quality liquid assets that may be substituted for assets that do not qualify as high-quality liquid assets without the bank's consent which have been received to secure transactions that have not been segregated; |
| (xviii) | based on the largest absolute net 30-day collateral flow realised during the preceding twenty four months related to collateralisation of mark-to-market exposures on derivative and other transactions to provide for valuation changes, and such further conditions as may be specified in writing by the Registrar, the bank shall apply an outflow factor of one hundred per cent in respect of the said absolute net collateral flow amount, provided that for purposes of this calculation— |
| (A) | the bank may treat inflows and outflows of all relevant transactions executed under the same master netting agreement on a net basis; |
| (B) | the said absolute net collateral flow amount shall be based on both realised outflows and inflows; |
| (xix) | the bank shall apply a run-off factor of one hundred per cent in respect of funding related to asset-backed securities or other structured financing instruments maturing within the said 30-day period, that is, when the aforesaid instruments are issued by the bank itself, the bank shall assume that the refinancing market will not exist, causing a complete outflow of the related funding maturing within the said 30-day period; |
| (xx) | the bank shall apply a run-off factor of one hundred per cent in respect of maturing funding related to asset-backed commercial paper, conduits, securities investment vehicles and other similar financing facilities, and one hundred per cent of the relevant required liquidity related to assets that may be returned, that is— |
| (A) | a bank with structured financing facilities in place that include the issuance of short-term debt instruments, such as asset-backed commercial paper, shall duly consider— |
| (i) | the inability to refinance maturing debt; and |
| (ii) | the existence of derivatives or derivative-like components contractually written into the documentation associated with the structure that may cause the "return" of assets in a financing arrangement, or that require the originator to provide liquidity, effectively ending the financing arrangement within the said 30-day period; |
| (B) | when the bank engages in structured financing activities through a special-purpose entity or vehicle, the bank shall, in determining its relevant requirement for high-quality liquid asset, look through the structure to the maturity of the debt instruments issued by the special purpose entity or vehicle, and any embedded options in financing arrangements that may potentially trigger the "return" of assets or the need for liquidity, irrespective whether or not the special-purpose entity or vehicle is consolidated; |
| (C) | based on the relevant requirements specified in this subparagraph (xx), a bank shall determine its relevant liquidity requirements in accordance with the requirements specified in table 2 below: |
Table 2
Potential risk
|
Required high-quality liquid assets
|
Debt maturing within the calculation period
|
100% of the maturing amount
|
Embedded options in financing arrangements that allow for the return of assets or potential liquidity support
|
100% of the amount of assets that may be returned, or the relevant amount of liquidity required
|
| (xxi) | the bank shall in respect of any relevant contractually committed undrawn credit or liquidity facility, that is, for example, any relevant explicit contractual agreement or obligation to extend funds at a future date to retail or wholesale counterparties or any other relevant person specified below, apply a drawdown or outflow factor of— |
| (A) | five per cent in respect of any committed undrawn credit or liquidity facility to retail or small business customers; |
| (B) | ten per cent in respect of any committed undrawn credit facility to non-financial corporates, sovereigns or central banks, public sector entities and multilateral development banks; |
| (C) | thirty per cent in respect of any committed undrawn liquidity facility to non-financial corporates, sovereigns or central banks, public sector entities, and multilateral development banks; |
| (D) | forty per cent in respect of any committed undrawn credit or liquidity facility extended to any other bank subject to prudential supervision; |
| (E) | forty per cent in respect of any committed undrawn credit facility extended to any financial institutions other than banks, including— |
| (iii) | fiduciaries as defined hereinbefore; and |
| (iv) | beneficiaries as defined hereinbefore; |
| (F) | one hundred per cent in respect of any committed undrawn liquidity facility extended to any financial institutions other than banks, including— |
| (iii) | fiduciaries as defined hereinbefore; and |
| (iv) | beneficiaries as defined hereinbefore; |
| (G) | one hundred per cent in respect of any committed undrawn credit or liquidity facility to any other legal entity, including, for example, conduits and special-purpose vehicles or entities, or any other entity not included elsewhere in one of the aforementioned categories, |
Provided that—
| (i) | for purposes of this subregulation (12), |
| (aa) | the bank shall include in its relevant calculations all relevant committed facilities that are contractually irrevocable or conditionally revocable, which off-balance sheet facilities or funding commitments may have long-term or short-term maturities, since customers drawing on facilities of any maturity in a stressed environment are unlikely to be able to quickly pay back the relevant borrowed funds; |
| (bb) | all relevant facilities that are assumed to be drawn, as envisaged in this subparagraph (xxi), shall be deemed to remain outstanding at the relevant amounts assigned thereto throughout the duration of the relevant stress period, regardless of maturity; |
| (cc) | the bank shall exclude from this category any revocable facility that is unconditionally cancellable by the bank, which facility shall be included in the category "other contingent funding liabilities"; |
| (dd) | a liquidity facility includes any relevant committed, undrawn back-up facility to be utilised to refinance the debt obligations of a customer in situations when such a customer is unable to rollover that debt in financial markets, such as pursuant to a commercial paper programme, secured financing transactions or obligations to redeem units, provided that— |
| (i) | the amount of the commitment that shall be treated as a liquidity facility shall be the amount of the currently outstanding debt issued by the relevant customer, or in the case of a syndicated facility the relevant proportionate share, maturing within a 30 day period and for which the facility serves as a backstop; |
| (ii) | any portion of a liquidity facility that is backing debt that does not mature within the said 30-day period shall be excluded from the liquidity facility for purposes of the relevant calculation; |
| (iii) | the bank shall treat any relevant additional capacity of the facility, that is, any remaining commitment, as a committed credit facility; |
| (ee) | any general working capital facility for corporate entities, such as revolving credit facilities for general corporate or working capital purposes, shall be classified as a credit facility and not as a liquidity facility; |
| (ff) | the bank shall reflect the aggregate amount related to all relevant facilities provided to hedge funds, money market funds, special-purpose funding vehicles or conduits, or other vehicles used to finance the banks own assets, in the category liquidity facilities to other legal entities; |
| (ii) | the provisions of this subparagraph (xxi) shall apply to all relevant lending commitments, including any relevant direct import or export financing for non-financial corporate entities; |
| (iii) | the relevant undrawn portion of the aforesaid facilities may be calculated net of any relevant eligible high-quality liquid assets already posted as collateral by the relevant counterparty to secure the facility or that contractually have to be posted when the counterparty draws down the facility, such as in the case of a liquidity facility structured as a repurchase facility, provided that— |
| (aa) | the bank shall be legally entitled and operationally capable to re-use the collateral in further cash raising transactions once the facility is drawn; and |
| (bb) | there shall be no undue correlation between the probability of drawing the facility and the market value of the collateral; and |
| (cc) | as stated hereinbefore, eligible collateral may be netted against the outstanding amount of the relevant facility only if that collateral is not included in the bank's relevant portfolio of high-quality liquid assets, that is, no instrument shall be double counted; |
| (iv) | a bank that acts as a liquidity provider or provider of associated liquidity facilities is not required to double count for any maturing financing instrument envisaged in subparagraphs (xix) and (xx) above, and any relevant related liquidity facility for consolidated programs; |
| (xxii) | the bank shall apply an outflow rate of one hundred per cent in respect of any relevant contractual lending obligation to extend funds to a financial institution not included hereinbefore, within the said 30 calendar day period; |
| (xxiii) | the bank shall apply an outflow rate of one hundred per cent in respect of the relevant excess amount by which the aggregate amount of all contractual obligations to extend funds to retail and non-financial corporate clients within the said 30 calendar days, not included in one of the aforementioned categories, exceeds fifty per cent of the aggregate amount of contractual inflows due in the next 30 calendar days from those clients, that is, when the aggregate amount of all contractual obligations to extend funds to retail and non-financial corporate clients within the next 30 calendar days, not included in one of the aforementioned categories, exceeds fifty per cent of the total contractual inflows due in the next 30 calendar days from those clients, the bank shall report that difference as a one hundred per cent outflow of funds; |
| (xxiv) | the bank shall apply such run-off factors or outflow rates in respect of such other relevant contingent funding obligations, and calculated in such a manner, as may be directed in writing by the Registrar, which contingent funding obligations may be either contractual or non-contractual obligations, and— |
| (A) | which contingent funding obligations— |
| (i) | are not lending commitments, that is, no lending related commitment shall be included in the category of products or instruments envisaged in this subparagraph (xxiv), but any lending related commitment shall be included as part of the products and instruments envisaged in subparagraph (xxi) above; |
| (ii) | may include products or instruments such as— |
| (aa) | unconditionally revocable or uncommitted undrawn credit or liquidity facilities; or |
| (bb) | guarantees or letters of credit other than instruments related to trade finance obligations; |
| (iii) | may relate to trade finance instruments, consisting of trade-related obligations directly underpinned by the movement of goods or the provision of services, such as— |
| (aa) | documentary trade letters of credit, documentary and clean collection, import bills, and export bills; and |
| (bb) | guarantees directly related to trade finance obligations, such as shipping guarantees; |
| (B) | which non-contractual contingent funding obligations— |
| (i) | include associations with, or sponsorship of, products sold or services provided that may require the support or extension of funds in the future under stressed conditions; |
| (ii) | may be embedded in financial products and instruments sold, sponsored, or originated by the bank that may give rise to unplanned balance sheet growth arising from support given for reputational risk considerations, such as, for example, products and instruments for which the relevant customer or holder has specific expectations regarding the liquidity and marketability of the product or instrument and for which failure to satisfy customer expectations in a commercially reasonable manner may cause material reputational damage to the bank, or otherwise impair its ongoing viability; |
| (iii) | may include products or instruments such as— |
| (aa) | potential requests for debt repurchases of the bank's own debt or that of related conduits, securities investment vehicles and other such financing facilities; |
| (bb) | structured products where customers anticipate ready marketability, such as adjustable rate notes and variable rate demand notes; and |
| (cc) | managed funds that are marketed with the objective of maintaining a stable value such as money market mutual funds or other types of stable value collective investment funds; |
| (iv) | may relate to potential liquidity draws from joint ventures or minority investments in entities that are not consolidated in accordance with the relevant requirements specified in these Regulations, but the bank is expected to be the main liquidity provider when the said entity is in need of liquidity; |
| (v) | may relate to internally matched client assets against other clients' short positions where the collateral does not qualify as level one or level two instruments or assets, and the bank may be obligated to find additional sources of funding for these positions in the event of client withdrawals, provided that in such cases the run-off factor that shall be applied to the relevant contingent obligation shall not be less than fifty per cent; |
| (xxv) | the bank shall apply an outflow rate of one hundred per cent in respect of any other contractual cash outflows within the next 30 calendar days, such as outflows to cover unsecured collateral borrowings, uncovered short positions, dividend payments or contractual interest payments, provided that any relevant outflow related to operating costs shall be excluded from the provisions of this subregulation (12). |
[Regulation 26(12)(d) substituted by regulation (2)(c) of Notice No. R. 309 dated 10 April 2015]
