Following the discontinuation of the so-called 8028 liquidity reporting requirement (8028 Staat/formulier Liquiditeitstoetsing) per 31 December 2016, DNB has decided to replace the former grace period with a new 6 month survival period requirement. The survival period requirement entails that a credit institution needs to ensure it can continue operating for a minimum period of 6 months and meet all its payments due under the assumed liquidity stress scenarios. This requirement is based on the outcome of the internal stress test of the credit institution, that should capture the vulnerabilities of the specific institution. Responsive actions taken by the management are to be incorporated in the stress if applicable (“dynamic balance sheet assumption”).
The stress test and survival horizon calculations should be in line with the draft EBA guidelines on liquidity risk stress testing (EBA/CP/2015/28) . According to these draft EBA guidelines, credit institutions have to apply three types of stress scenarios: an idiosyncratic scenario, a market-wide scenario, and a combination of these two scenarios. Credit institutions should furthermore design different time horizons in their stress testing, which should range from intraday and overnight up to at least 12 months. Credit institutions are expected to meet the 6 month survival period requirement in all three types of stress scenarios.
Net stable funding proxy
Apart from the survival period, an LSI will be required to maintain a minimum net stable funding ratio (“NSFR”) of 100%, thereby ensuring the stability of the institution’s funding profile. Anticipating the implementation of the NSFR, DNB applies the European Commission’s proposal for the net stable funding ratio in the CRR/CRD Review . The aforementioned EBA Guideline 2014/13 specifically mentions such an approach pending the implementation of the NSFR. We refer to the EC’s proposal for a new Title IV of Part Six of the Capital Requirements Regulation (EU) 575/2013 (CRR) on the net stable funding ratio and the relevant factors for calculating the available stable funding and the required stable funding.
SREP process 2017
The new requirements will become applicable via the so-called SREP letter that credit institutions will receive as part of their next Supervisory Review and Evaluation Process (SREP). DNB expects an LSI to calculate and monitor its survival period and its NSFR at least on a monthly basis. DNB should be notified by an LSI in case its survival period drops below 7 months . In addition, whilst DNB already receives information on the NSFR via regulatory reporting, DNB should also be informed when the NSFR falls or is expected to fall below 100%. For the institutions that do not meet the requirements when they come into force, institution specific arrangements will be made to become compliant.