Supervisory measures in reaction to the Corona crisis – Minimum liquidity requirements

The following blog post is part of the overview of supervisory measures in reaction to the Corona crisis: Supervisory measures in reaction to the Corona crisis – Overview.

Minimum liquidity requirements

Beyond the additional capital needs, banks might face significant liquidity constraints. This might be due to higher outflows, e.g. stemming from retail and operational accounts or additional collateral calls in times of stress, and lower inflows, e.g. as a result of counterparty defaults or deferred payments. Further, the deterioration of the credit quality of bond or equity issuers might lead to decreasing volume of eligible liquid assets. 

Therefore, the ECB allows banks to make use of their liquidity buffer under stress. This means to operate temporarily below the minimum LCR level of 100% in order to ensure liquidity in the system and avoid contagion effects that might trigger liquidity problems in other institutions. However, the precautions to be taken according to Art. 414 CRR when there is an (expected) LCR shortfall will be still applicable, i.e. immediate notification to the competent authorities, preparation of a liquidity restoration plan and daily LCR reporting. (please click to enlarge)

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