Supervisory tools: Liquidity tools

These tools are designed to demonstrate some of the metrics we calculate using the information from firms’ regulatory reporting of their liquidity. They are for information only and must not be used to submit regulatory returns required by our rules.

Update 1 November 2019: We have published an update to the PRA110 liquidity metric monitor tool (PRA110 LMM tool) – see Version 01.04 and Version 02.02. This follows feedback received on the previous PRA110 LMM tools (Version 01.03 and 02.01) published on Thursday 3 October 2019. V01.04 of the PRA110 LMM tool is based on the current PRA110 template, while V02.02 uses the PRA110 template that will come into effect from Wednesday 1 January 2020.

The PRA110 LMM tool is intended to assist firms in the same way as the LMM for FSA047 and FSA048 (see below). It is for information only and must not be used to submit regulatory returns required by our rules. This tool is designed to demonstrate some of the metrics we calculate using the information from PRA110. 

ExcelPRA110-LMM tool v01.04

ExcelPRA110-LMM tool v02.02

Published on 01 April 2013

This document is an annex pertaining to letters the Prudential Regulation Authority (PRA) sends to firms setting out individual liquidity guidance. The annex sets out the methodology used to calculate the Liquidity Buffer element of ILG to be used for ILG for Backstop, and ILG issued after an assessment.

PDF Annex to individual liquidity guidance letters 

Liquidity metric monitor

Background

This tool is designed to demonstrate some of the metrics we calculate using the information from FSA047 and FSA048. It is provided to firms on a ‘for information’ basis. The materials must not be used to submit regulatory returns required by our rules.

The tool also provides estimates of the ‘Basel III’ Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio (NSFR) as announced in December 2010 (though see caveats below).

Excel LMM tool for Standard ILAS firms

Excel LMM tool for Simplified ILAS firms (to be used by Simplified ILAS firms only) 

LCR and NSFR elements

  • The LCR and NSFR calculations performed by the LMM from the FSA047/048 data set are estimations, intended to provide a useful guide to firms, but are not a substitute for a firm’s own assessment of their position with respect to these metrics. Errors will arise due to mismatches and gaps in the FSA047/048 data, which is based on FSA definitions, and not on the definitions required to calculate the Basel LCR and NSFR.
  • Both metrics are also subject to an observation period to address unintended consequences, if any, and are therefore potentially subject to change.
  • Firms should note the metrics specify minimum run-off rates and national supervisors have discretion to set higher run-off rates; they also contain off balance sheet categories where run-off rates are not specified, but where national supervisors are expected to set appropriate, but as yet unspecified, run-off rates.
  • The metrics are also intended to be applied at a consolidated group level and do not, therefore, specify the treatment of intra-group loans and deposits. Where firms complete the FSA 047/048 on the basis of multiple legal entities the outputs will not capture ‘trapped’ liquidity in the context of calculating the consolidated metrics.
  • Mismatches in the data and calculations include, but are not limited to, the following:

LCR

  • The LMM uses a one month (modified following convention) stress horizon, whereas the LCR uses a 30 calendar day horizon
  • FSA 47 and 48 report principal flows only and do not include interest paid or received or other outflows, such as dividends.
  • Retail and SME outflows are calculated using the minimum run-off rates of 5% (stable) and 10% (less stable), individual jurisdictions are asked to set their own outflow assumptions and are "expected to develop additional buckets with higher run-off rates as necessary to apply to buckets of potentially less stable retail deposits". Supervisors may also assign an outflow to fixed-term retail deposits if, for example, they believe such deposits would be withdrawn in a stress.
  • We have assumed a 1:1 map between a firm's Type A and Type B splits and the "stable" and "less stable" definition of the LCR, but as the former are defined by the firm itself, it would clearly be for the firm to judge. Firms should continue to report using FSA 047/048 definitions.
  • FSA 047/048 do not differentiate between “stable” and “less stable” SME deposits. We have assumed a 50/50 split between "stable" and "less stable" and therefore assumed a 7.5% outflow for this category.
  • In calculating the amount of Level 2 securities we have used a credit quality step 2 cut-off as per FSA 047/048 data definitions; whereas the LCR uses a credit quality step 1 cut-off. FS047/048 only differentiates between bank and non-bank corporates, and therefore we also cannot exclude non-bank financial institution bonds as well.
  • The LMM calculates the buffer position at one month as a portion of the cumulative one month cash flow requirement whereas the LCR uses an adjusted buffer after rollover assumptions versus a 30 day cash flow requirement (adjusted current stock versus net cash flow). Both approaches are consistent, although the LMM calculation results in the 75% inflow cap applying to reverse repo of some level 2 assets (where FSA 047/048 does not separate these flows); it should only apply to reverse repo of non-level 1 or level 2 assets.
  • The LMM applies the 40% level 2 cap to the requirement, whereas the LCR has a dynamic limit that “adjusted level 2 securities” cannot exceed 2/3 of “adjusted level 1 securities”; only if the LCR equals 100% are the calculations identical.
  • The LCR calculations in the LMM assume that firms have no ‘operational’ balances as defined in the Basel text that would receive a 25% requirement instead of a 75% (non-financial) or 100% (financial) requirement. As such, Type B deposits from larger enterprises have been treated the same as type A deposits. Whilst this would typically be true, given the definition as it stands in the text, there will be certain business models that may have significant deposits in this category.
  • Under the Basel proposals any short covering trade maturing within 30 days should be assumed to rollover to cover the short and not give rise to a cash inflow or a stock inflow. FSA 047/048 only capture overall shorts in any asset class.

NSFR

  • The NSFR is an accounting balance sheet test and the FSA047/048 uses a “cash balance sheet” using market or nominal values where appropriate, and ignores the accounting treatment.
  • Any FSA047/048 balance sheet imbalance is assumed to require 100% stable funding (100% RSF) as these imbalances are typical fixed assets or investments in subsidiaries /associates.
  • FS047/048 does not capture unencumbered loans maturing beyond one year that attract a 35% or lower risk weighting in order to apply the lower 65% RSF factor. This would predominantly capture unencumbered high-quality mortgages, so for some banks this would represent a significant difference.
  • As with the LCR, the LMM assumes the firm’s definition of Type A and Type B retail deposits matches the Basel definition and cannot differentiate between stable and less stable SME deposits. In the latter case, we have assumed a 50/50 split and therefore assumed an 85% ASF factor (90% stable / 80% less stable).
  • In applying RSF factors for securities, we have had to make assumptions as FSA 047/048 does not distinguish between securities owned outright and those borrowed under repurchase agreements, whereas the accounting balance sheet does.
  • Update 3 October 2019: We have published a further update (Version 01.03) to the PRA110 liquidity metric monitor tool (PRA110 LMM tool) based on the current PRA110 template, which will be in place until 31 December 2019. This updated version reflects minor changes in response to feedback received on Version 01.02, published on Friday 30 August 2019.

    The PRA110 LMM tool is intended to assist firms in the same way as the LMM for FSA047 and FSA048 (see above). It is for information only and must not be used to submit regulatory returns required by our rules. This tool is designed to demonstrate some of the metrics we calculate using the information from PRA110.

    ExcelPRA110-LMM tool v01.03

    We also published a new liquidity metric monitor tool (PRA110 LMM tool) that is aligned to the PRA110 template (effective 1 January 2020) as set out in Policy Statement (PS) 13/19 ‘Pillar 2 liquidity: Updates to the framework’. This updated tool (Version 02.01) mirrors the logic of Version 01.03 (see above), but also reflects the changes to the PRA110 template outlined in PS13/19 and the changes required to the calculation methodology as a result.

    ExcelPRA110-LMM tool v02.01

    Update 30 August 2019: We have published an update (Version 01.02) to the PRA110 liquidity metric monitor tool (PRA110 LMM tool) in response to feedback received on Version 01.01, published on Friday 31 May 2019.

    This tool is intended to assist firms in the same way as the LMM for FSA047 and FSA048 (see below). It is for information only and must not be used to submit regulatory returns required by our rules. This tool is designed to demonstrate some of the metrics we calculate using the information from PRA110.

    This updated tool aligns with the current PRA110 template. A new version of the PRA110 LMM tool (Version 02.01) that is aligned to the PRA110 template (effective 1 January 2020) as set out in Policy Statement 13/19 ‘Pillar 2 liquidity: Updates to the framework’ will be published in due course.

    Excel PRA110-LMM tool v01.02  

    During the dual reporting period, which commenced on Monday 1 July 2019, the LMM tool for FSA047 and FSA048 (see below) continues to apply. 

    Update 31 May 2019: As part of our work on the Pillar 2 liquidity framework, including the introduction of PRA110 reporting by firms from 1 July 2019, we published Version 1 of the PRA110 liquidity metric monitor tool (PRA110 LMM tool). It is published to assist firms in the same way as the LMM for FSA047 and FSA048 (see below). It is for information only and must not be used to submit regulatory returns required by our rules. This tool is designed to demonstrate some of the metrics we calculate using the information from PRA110.

    The PRA110 LMM tool may be updated after the publication of the final policy following Consultation Paper 6/19 ‘Pillar 2 liquidity: Updates to the framework’  if required, to align with an updated PRA110 reporting template.

    ExcelPRA110-LMM tool v01

    During the dual reporting period, starting on 1 July 2019, the LMM tool for FSA047 and FSA048 (see above) continues to apply. 

Was this page useful?
Add your details...