The European Banking Authority (EBA) launched a consultation on new liquidity disclosures on 11 May. In particular, the EBA is proposing that banks disclose their Liquidity Coverage Ratio (LCR) figures at least annually.
There is no explicit requirement in the Capital Requirements Regulation (CRR) for banks to disclose liquidity information in their Pillar 3. Nor is there a mandate for the EBA to produce guidelines on liquidity disclosure. However, the Basel Committee have called for mandatory LCR disclosure. The EBA is relying on CRR Article 435(1)(f), which requires banks to disclose "key ratios and figures providing external stakeholders with a comprehensive view" of risk management. The EBA argues that the LCR is currently the only key ratio used in current liquidity regulations and therefore it ought to be disclosed under Article 435(1)(f).
The paper clarifies that these LCR disclosure guidelines apply only to those firms in scope of the LCR, i.e. banks but not investment firms. The new disclosures will also be subject to the usual CRR Article 432 exemptions from disclosure on the grounds of materiality or confidentiality that apply to the Pillar 3 disclosures. In practice, they are likely to form part of a bank's Pillar 3 disclosures, rather than an entirely new and separate disclosure.
The EBA has relied upon the LCR disclosure approach proposals developed by the Basel Committee, but has also added in some EU-specific elements. The line items in the proposed disclosure template are defined in the same terms as line items used in the COREP LCR reporting forms, in order to minimise costs of compliance.
The revelation that yet more disclosure requirements are on the way may concern the industry. However, the EBA has sought to minimise the additional cost involved in completing these disclosures by aligning them with the existing data requirements in the COREP forms. Nevertheless, some banks may be uncomfortable about having to publish information about their exposure to liquidity risk, particularly details of their exposure to outflows in a stressed scenario.
As these proposals are currently open for consultation banks are encouraged to highlight any concerns or any inadvertent risks to market stability that they may cause by responding to the EBA's consultation paper. The consultation closes on 11 August 2016.
The EBA is targeting an implementation date for these new requirements of June 2017.
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