| (e) | Matters related to the calculation of a bank's total expected cash inflows |
Based on the relevant requirements specified in this subregulation (12), including in particular, the categories of loans or receivables, and the inflow rates or factors, specified below, a bank shall continuously calculate its expected or potential total cash inflows, for which purposes—
| (i) | the bank shall include only contractual inflows from outstanding loans or exposures that are fully performing, and in respect of which the bank has no reason to expect a default within the envisaged 30-day time horison, which inflows— |
| (A) | shall include any relevant amount related to interest payments; but |
| (B) | shall exclude any relevant amount related to any contingent inflows; |
| (ii) | the bank shall manage its business in such a manner that its liquidity position is at no stage overly dependent on the expected inflows from one or a limited number of wholesale counterparties; |
| (A) | shall assume that maturing resale or securities borrowing agreements secured by level one high-quality liquid assets will be rolled-over, and will therefore not give rise to any cash inflows, that is, in respect of maturing resale or securities borrowing agreements secured by level one high-quality liquid assets, the bank shall apply an inflow factor of zero per cent; |
| (B) | shall, in respect of maturing resale or securities lending agreements secured by level two high-quality liquid assets assume a cash inflow equivalent to the relevant haircut(s) specified in these Regulations for that particular asset; |
| (C) | shall assume no roll-over in respect of maturing resale or securities borrowing agreements secured by assets other than level one or level two high-quality liquid assets, and as such the bank shall assume to receive back one hundred per cent of the cash related to such agreements; |
| (D) | shall treat any relevant collateralised loan extended to a customer for the purpose of taking a leveraged trading position, which transaction is sometimes being referred to as a "margin loan", as a form of secured lending, provided that for purposes of these Regulations the bank shall assume a maximum contractual inflow of fifty per cent from such maturing margin loans secured by assets or instruments other than level one or level two high-quality liquid assets, |
Provided that,
| (i) | when the collateral obtained through resale or securities borrowing agreements, or collateral swaps, which agreements or contracts mature within the said 30-day horizon, is re-used, that is, rehypothecated, and is used to cover short positions that may be extended beyond 30 days, the bank shall assume that such resale or securities borrowing arrangements will be rolled-over, and as such the bank shall apply an inflow factor of zero per cent to reflect the need to continue to cover the short position or to re-purchase the relevant securities; |
| (ii) | a short position envisaged in sub-item (i) above includes— |
| (aa) | instances where, in its 'matched book', the bank sold short a security outright, as part of a trading or hedging strategy; and |
| (bb) | instances where the bank is short a security in its 'matched' repo book, that is, the bank has borrowed a security for a given period and lent the security out for a longer period; |
| (iii) | in the case of a short position, when the short position is covered by— |
| (aa) | an unsecured security borrowing, the bank shall assume the unsecured security participants would run-off in full, leading to a one hundred per cent outflow of either cash or high-quality liquid assets to secure the borrowing, or cash to close out the relevant short position by buying back the security, which situation shall be recorded as a one hundred per cent other contractual outflow in accordance with the relevant requirements specified in paragraph (d)(xxv) above; |
| (bb) | a collateralised securities financing transaction, the bank shall assume the short position will be maintained throughout the 30-day period and receive a zero per cent outflow; |
| (iv) | the respective scenarios envisaged hereinbefore may be summarised as set out in table 3 below: |
Table 3
Maturing secured lending, secured by:
|
Assumed inflow rate if collateral is not used to cover short positions:
|
Assumed inflow rate if collateral is used to cover short positions:
|
Level one high-quality liquid assets
|
0%
|
0%
|
Level 2A high-quality liquid assets
|
15%
|
0%
|
Level 2B high-quality liquid assets
— eligible RMBS
— other level 2B assets
|
25%
50%
|
0%
0%
|
Margin lending secured by all other collateral
|
50%
|
0%
|
All other collateral
|
100%
|
0%
|
| (v) | notwithstanding the aforesaid applied assumptions, the bank shall continuously manage its collateral in such a manner that the bank is able to fulfil any obligation to return collateral whenever the relevant counterparty decides not to roll-over the resale or securities lending transaction; |
| (iv) | the bank shall, in order to— |
| (A) | reduce the contagion risk of liquidity shortages at one bank causing shortages at other banks; |
| (B) | reflect the risk that other banks may not be in a position to honour credit lines; and/or |
| (C) | reflect the risk that other banks may decide to incur the legal and reputational risk involved in not honouring their commitments, to conserve their own liquidity or reduce their exposure to that bank, |
apply an inflow factor of zero per cent in respect of any relevant line of credit, liquidity facility or other contingent funding facility that the bank may hold at any other relevant institution for its own purposes;
| (v) | the bank shall, in respect of all relevant types of secured or unsecured transactions with retail, small business or wholesale clients, apply to the amounts specified below, the respective inflow factors specified below, provided that— |
| (A) | as stated hereinbefore, when considering any relevant loan payment, the bank shall only include inflows in respect of fully performing loans; |
| (B) | any relevant inflow amount shall, based on the contractual rights available to the relevant counterparty, only be included in the bank's relevant calculation at the latest possible date, that is, in the case of— |
| (i) | a revolving credit facility, the bank shall assume that the existing loan will be rolled over and that any remaining balance shall be treated in a manner similar to a committed facility, as specified in subregulation (12)(d)(xxi) above; |
| (ii) | any relevant loan that either has no specified maturity or the maturity is not duly defined or the loan has an open maturity, the bank shall assume no amount of inflow, provided that in such cases the bank may include as an inflow any relevant minimum payments of principal, fee or associated interest when such payments are contractually due within the relevant 30-day period, which minimum payment amounts shall be captured as inflows in accordance with the relevant requirements specified in items (C) and (D) below; |
| (C) | in the case of relevant inflows from retail and small business customers, the bank shall assume that it will receive all relevant payments, including all relevant interest payments and instalments, that are fully performing and contractually due within the said 30-day period, and at the same time the bank shall assume that it will continue to extend loans to retail and small business customers at a rate equal to fifty per cent of the relevant contractual inflow amount, that is, the bank shall in the case of retail and small business customers assume a net inflow of fifty per cent of the relevant aggregate contractual inflow amount; |
| (D) | in the case of relevant inflows from wholesale clients, the bank shall assume that it will receive all relevant payments, including all relevant interest payments and instalments, that are fully performing and contractually due within the said 30-day period— |
| (i) | from financial institutions and central bank counterparties, and at the same time the bank shall assume that it will continue to extend loans to financial institutions and central bank counterparties at a rate of zero per cent of the relevant aggregate inflow amount, that is, the bank shall assume a net inflow amount from financial institutions and central bank counterparties equal to one hundred per cent of the relevant aggregate contractual inflow amount; |
| (ii) | from all relevant wholesale clients other than financial institutions and central bank counterparties, including clients such as non-financial corporates, sovereigns, multilateral development banks and public sector entities, and at the same time the bank shall assume that it will continue to extend loans to such clients at a rate of fifty per cent of the relevant aggregate inflow amount, that is, the bank shall assume a net inflow amount from wholesale clients other than financial institutions and central bank counterparties equal to fifty per cent of the relevant aggregate contractual inflow amount; |
| (E) | the bank shall treat all relevant inflows from securities maturing within 30 days not included in the bank's portfolio of high-quality liquid assets in the same category as inflows from financial institutions, that is, the bank shall assume an inflow amount equal to one hundred per cent of the relevant aggregate amount, provided that— |
| (i) | the bank may also recognise in this category inflows from the release of balances held in segregated accounts in accordance with relevant regulatory requirements for the protection of customer trading assets, provided that— |
| (aa) | these segregated balances shall be maintained in the relevant portfolio of high-quality liquid assets; |
| (bb) | the bank shall calculate the related inflow in accordance with the relevant requirements specified in these Regulations in respect of other related outflows and inflows; |
| (ii) | the bank shall include in its relevant portfolio of high-quality liquid assets all relevant level one and level two securities or instruments that comply with all the relevant operational and other definitional requirements specified in the Act and in these Regulations, and that mature within the said 30-day period; |
| (vi) | the bank shall apply an inflow factor of zero per cent in respect of any relevant deposits held at other financial institutions for operational purposes, as envisaged in paragraph (d)(v) and (d)(vi) above, including all relevant deposits for clearing, custody, and cash management purposes; |
| (vii) | the bank shall apply an inflow factor of zero per cent in respect of any relevant deposits held at a centralised institution in a cooperative banking network, which deposits shall be assumed to remain at that centralised institution, that is, the relevant depositing bank shall apply an inflow factor of zero per cent in respect of any relevant deposits held at a centralised institution in a cooperative banking network; |
| (viii) | the bank shall apply an inflow factor of one hundred per cent in respect of the relevant sum of all net cash inflows related to derivative instruments, provided that— |
| (A) | the relevant amounts of cash inflows and outflows from derivative instruments shall be calculated in accordance with the relevant requirements specified in paragraph (d)(xii) above; |
| (B) | when derivative instruments are collateralised by high-quality liquid assets, the bank shall calculate cash inflows net of any corresponding cash or contractual collateral outflows that will result from contractual obligations for cash or collateral to be posted by the bank, which contractual obligations shall reduce the bank's relevant stock of high-quality liquid assets, that is, the bank shall not double-count any relevant liquidity inflow or outflow amount; |
| (ix) | the bank shall apply such inflow factors in respect of such other relevant contractual cash inflows, and calculated and disclosed in such a manner, as may be directed in writing by the Registrar, which other contractual cash inflows shall exclude any relevant cash inflow related to any non-financial revenue. |
[Regulation 26(12)(e) substituted by regulation (2)(c) of Notice No. R. 309 dated 10 April 2015]
