BKLM36200 - Chargeable equity and liabilities: high quality liquid assets: Application for non-EEA banks

In the case of a bank based outside the European Economic Area (EEA) operating in the UK through a permanent establishment the regulatory definitions of high quality liquid assets of their home regulator are unlikely to align completely with those needed for bank levy calculations.

Although an HQLA deduction will only be available for asset types described as Level 1 by the UK regulator, the following shortcuts to calculation may be applied provided that the home regulatory system of the entity is Basel III compliant.

Mapping of categories

Although a UK permanent establishment may not claim an HQLA deduction for the holding of any asset that would not meet the Level 1 criteria of the PRA, there is no requirement for the entity to restate their liquid asset buffer entirely under UK regulatory rules.

  • Any categories designated by the home regulator that would be wholly categorised as Level 1 under the UK rules (either because the home terms are the same or more restrictive) may be treated as HQLA for the purposes of bank levy without further breakdown.
  • Any categories designated by the home regulator that would NOT be wholly categorised as Level 1 under the UK rules (either because the home terms are less restrictive or simply different) may be treated as HQLA for the purposes of bank levy provided that holdings of those assets that would not qualify as Level 1 under UK rules are subtracted from the total amount.
  • Assets which are held by the bank which do not qualify as Level 1 assets under the rules of their home regulator, but would do so under UK rules (such as sovereign debt issued by governments of non-zero risk weighted European Member States) may be added to the total HQLA figure for the purposes of the bank levy deductions.

Stressed net liquidity outflows

In order to calculate a bank’s net stressed liquidity outflows in any given currency or location, a bank may rely on calculations undertaken for their home regulator, provided that they are Basel III compliant. They will not have to recalculate the coverage amounts under UK regulatory rules.

If the home regulatory rules are not Basel III compliant then these calculations will have to be undertaken in line with UK regulatory rules.

Nominated credit reference agencies

A non-EEA bank who has no need to nominate a credit reference agency or agencies for their home regulator may treat a qualifying credit reference agency or agencies as nominated for the purposes of the bank levy computation.

As would be the case for a UK regulated bank these “nominations” must be applied consistently for the risk weighting of all liquid asset holdings of the bank.

In order for an asset to be eligible as HQLA for bank levy purposes it must have received a risk weighting from at least one of the bank’s “nominated” credit reference agencies.