The European Banking Authority is required to provide advice to the European Commission on the types of assets that may be allowed to count toward a bank’s Liquidity Coverage Ratio (LCR). On February 21st, the EBA released a discussion paper presenting the methodology and scope of its forthcoming analysis on definitions of highly liquid assets and requesting expressions of views by March 21st 2013 (http://eba.europa.eu/News–Communications/Year/2013/EBA-consults-on-the-process-to-define-highly-liqui.aspx). Following the consultation, the EBA will deliver its final report to the European Commission for integration in CRD.
This is a very important consultation for the future of securitisation in Europe. Any high quality asset that is allowed as a “highly liquid asset” in the LCR will gain an immediate liquidity boost. Any asset that is not included will most likely suffer as its attractiveness to European bank investors will be eroded.
The EBA consultation follows the publication in January of the Basel Committee on Banking Supervision’s approach to the LCRs. (See http://www.bis.org/publ/bcbs238.htm).
It is presently PCS’s intention to respond to the EBA consultation.