Bank of Russia eases Basel III LCI (LCR) calculation

The approved approaches to the procedure for calculating the liquidity coverage indicator and ratio are in line with the amendments introduced in the laws of the Russian Federation, as well as the clarifications released by the Basel Committee on Banking Supervision. The relevant ordinances have been registered by the Ministry of Justice of the Russian Federation and become effective on 6 October 2019.

The modifications to the regulation will expand the opportunities for systemically important credit institutions to comply with the established ratio without using Bank of Russia credit lines. As a reminder, the liquidity coverage indicator (LCI) is to be calculated by large banks, while systemically important credit institutions should also comply with the liquidity coverage ratio (LCR, N26 (N27).

The clarifications to the LCI (LCR) calculation procedure are related to the classification of small businesses’ raised funds with account of the coverage within the deposit insurance system, as well as to the inclusion in the calculation of irrevocable savings certificates by periods remaining until deposit maturity dates stipulated in certificates. The amendments have corrected the term of covered transactions — they only imply transactions backed by securities (excluding borrowings from the central bank, regardless of types of assets provided as collateral).

The clarifications also cover the procedure for the inclusion of funds raised from bank-related parties: if funds are raised under market conditions and there are cooperation agreements between a bank and a related party, such funds are to be included into the LCI (LCR) calculation similarly to funds raised from unrelated parties (this modification allows the application of a cash outflow rate of 40% instead of 100%). A number of amendments apply to the procedure for the inclusion of cash flows on derivatives into the LCI (LCR) calculation.

The amendments stipulate the conditions for the inclusion of funds placed in required reserve accounts with foreign central (national) banks into highly liquid assets.

The requirements for highly liquid assets have also been changed: the criterion that securities shall be on exchanges’ quotation lists has been replaced for the criterion that securities shall be admitted to on-exchange trading.