Regulation on the Liquidity of Institutions (Liquidity Regulation - LiqV)

Page 1 of 21 Revised Reading Version As of June 26, 2021 Non-official Text Regulation on the Liquidity of Institutions (Liquidity Regulation – LiqV) Of December 14, 2006 last amended by Article 7 Paragraph 41 of the Act on the Implementation of Directive (EU) 2019/2034 on the Supervision of Securities Firms of May 12, 2021 (BGBl. I p. 990). The Federal Ministry of Finance ordains on the basis of

• Section 11 Paragraph 1 Sentence 2 of the Banking Act (Kreditwesengesetz), which was newly formulated by Article 1 Number 16 of the Act of November 17, 2006 (BGBl. I p. 2606), after consultation with the peak associations of institutions and
• Section 51b Paragraph 2 Sentence 1 of the Banking Act, which was inserted by Article 1 Number 84 of the Act of August 28, 2013 (BGBl. I p. 3395), after consultation with the peak association of housing companies with savings facilities, each in agreement with the Deutsche Bundesbank:

Page 2 of 21 § 1 Scope of Application This Regulation shall apply to those credit institutions to which the provisions of Part 6 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176 of 27.6.2013, p. 1; L 208 of 2.8.2013, p. 68; L 321 of 30.11.2013, p. 6; L 193 of 21.7.2015, p. 166; L 20 of 25.1.2017, p. 3; L 13 of 17.1.2020, p. 58; L 335 of 13.10.2020, p. 20; L 405 of 2.12.2020, p. 79), last amended by Regulation (EU) 2020/873 (OJ L 204 of 26.6.2020, p. 4), do not apply.

§ 2 Sufficient Liquidity (1) 1 The liquidity of an institution shall be deemed sufficient if the liquidity ratio to be determined does not fall below the value of one. 2 The liquidity ratio indicates the ratio between the cash available in Maturity Band 1 and the payment obligations callable during this period. 3 Cash and payment obligations are each to be assigned to one of the following maturity bands: due

1. daily or within one month (Maturity Band 1),
2. in more than one month up to three months (Maturity Band 2),
3. in more than three months up to six months (Maturity Band 3),
4. in more than six months up to twelve months (Maturity Band 4). (2) 1 The institution shall calculate observation ratios that indicate the ratio between the respective cash and payment obligations in the maturity bands according to Paragraph 1 Sentence 3 Nos. 2 to 4. 2 The determination of the observation ratios shall be carried out in accordance with the calculation of the liquidity ratio according to Paragraph 1 Sentence 2. 3 If the cash available in a maturity band exceeds the callable payment obligations, the difference amount shall be taken into account as additional cash in the determination of the observation ratio in the next higher maturity band.

Page 3 of 21 § 3 Cash (1) As cash, subject to Paragraph 3, the following shall be recorded in Maturity Band 1:

1. Cash on hand,
2. Balances at central banks,
3. Collection papers,
4. Irrevocable credit commitments received by the institution from another credit institution or from KfW (Kreditanstalt für Wiederaufbau),
5. Securities not valued as fixed assets that are admitted to trading on a recognized exchange within the meaning of Article 4 Paragraph 1 Number 72 of Regulation (EU) No 575/2013 in a state of the European Economic Area or on a securities exchange within the meaning of Section 1 Paragraph 3e of the Banking Act (listed securities), including securities transferred to the institution as the repo buyer or borrower in the context of repurchase agreements or securities lending transactions,
6. Assets recognized by the European Central Bank or the central bank of a state whose unsecured payment obligations would receive a risk weight of 0 percent under Article 114 of Regulation (EU) No 575/2013 as eligible collateral according to the respective list, provided that the credit institution must have a branch in the home country of the central bank if it does not belong to the European System of Central Banks, including assets transferred to the institution as the repo buyer or borrower in the context of repurchase agreements or securities lending transactions, unless already covered under Number 5 (eligible assets for zero-weighted central banks),
7. Covered bonds not valued as fixed assets within the meaning of Article 129 of Regulation (EU) No 575/2013, including covered bonds transferred to the institution as the repo buyer or borrower in the context of repurchase agreements or securities lending transactions, and
8. Up to 90 percent of the respective repurchase prices, units in domestic UCITS special funds, domestic special funds whose investment conditions provide for investment principles and limits corresponding to those of domestic UCITS, and EU-UCITS,

Page 4 of 21 insofar as their repurchase and settlement rules correspond to those for retail special funds; the investment conditions of the special funds must ensure that unit holders can return their units on a daily basis and that repurchase cannot be refused contrary to Section 98 Paragraph 2 of the Investment Code (Kapitalanlagegesetzbuch). (2) As cash, subject to Paragraph 3, the following shall be recorded in Maturity Bands 1 to 4 according to their remaining maturities:

1. Claims on central banks,
2. Claims on credit institutions,
3. Claims on customers,
4. Bills refinancable at central banks that do not already fall under Numbers 2 or 3,
5. In-kind claims of the lending institution for the return of lent securities,
6. Other bonds and other fixed-income securities not covered under Paragraph 1, including fixed-income securities transferred to the institution as the repo buyer or borrower in the context of repurchase agreements or securities lending transactions,
7. In-kind claims of the repo seller for the re-transfer of securities in the context of genuine repurchase agreements,
8. Monetary claims of the repo buyer from non-genuine repurchase agreements up to the agreed repayment amount, if the current market value of the transferred securities is below this amount, and
9. Claims against the public sector (in particular currency conversion compensation funds), including bonds issued from their conversion, insofar as they are not covered by Paragraph 1 No. 5, insofar as the respective remaining maturities on the reporting date do not exceed one year. (3) No liquid-effective cash within the meaning of Paragraphs 1 and 2 are:
10. Claims and bills on which individual allowances have been made if current performance disruptions exist,

Page 5 of 21 2. Participations and units in affiliated companies, 3. Repurchased bonds of own issuance that do not meet the requirements of Article 129 of Regulation (EU) No 575/2013, 4. Securities transferred in the context of repurchase agreements or securities lending transactions for the duration of the transaction with the repo seller or lender, 5. Securities pledged as collateral that are removed from the disposal of the institution for the period of the collateralization, unless they are pledged at a central bank of the European System of Central Banks, and 6. Other investment units not listed under Paragraph 1 No. 8, insofar as they are not covered as cash by Paragraph 1 No. 5.

§ 4 Payment Obligations (1) As payment obligations, the following shall be recorded in Maturity Band 1:

1. 40 percent of liabilities due daily to credit institutions,
2. 10 percent of liabilities due daily to customers,
3. 10 percent of savings deposits within the meaning of Section 21 Paragraph 4 of the Credit Institutions Accounting Regulation (Kreditinstituts-Rechnungslegungsverordnung),
4. 5 percent of contingent liabilities from forwarded bills,
5. 5 percent of contingent liabilities from assumed guarantees or warranty obligations,
6. 5 percent of the liability amount from the provision of collateral for third-party liabilities,
7. 20 percent of placement or takeover obligations, and
8. 20 percent of undrawn, irrevocably committed loans, if they are not to be recorded according to Paragraph 2 No. 12 or Paragraph 3.

Page 6 of 21 (2) As payment obligations, the following shall be recorded in Maturity Bands 1 to 4 according to their remaining maturities:

1. Liabilities to a central bank,
2. Liabilities to credit institutions,
3. (repealed)
4. Liabilities to customers, insofar as they do not fall under Number 12,
5. In-kind liabilities of the borrowing institution for the return of borrowed securities,
6. In-kind liabilities of the repo buyer from the obligation to return securities in the context of genuine securities repurchase agreements,
7. Monetary liabilities of the repo seller from non-genuine repurchase agreements up to the agreed repayment amount, if the current market value of the transferred securities is below this amount,
8. Securitization liabilities,
9. Subordinated liabilities,
10. Participatory rights capital,
11. Other liabilities, and
12. 20 percent of the undrawn part of securitization liquidity facilities within the meaning of Article 255 Paragraph 1 of Regulation (EU) No 575/2013, which cannot be terminated by the institution at any time without notice and unconditionally, if a drawdown between the refinancing dates for the securitization transaction is excluded, insofar as the respective remaining maturities on the reporting date do not exceed one year. (3) The expected drawdowns of irrevocably committed investment loans and mortgage-backed loans paid out according to construction progress during the twelve months following the reporting date shall be recorded at
13. 12 percent in Maturity Band 1,

Page 7 of 21 2. 16 percent in Maturity Band 2, 3. 24 percent in Maturity Band 3, and 4. 48 percent in Maturity Band 4.

§ 5 Securities Repurchase and Securities Lending Transactions (1) 1 Securities repoed in the context of genuine repurchase agreements shall be attributed to the inventory of the repo buyer, who must take into account a resulting in-kind liability for the return of the papers. 2 The repo buyer shall credit a monetary claim against the repo seller up to the agreed repayment amount. 3 The repo seller shall record an in-kind claim for the return of the papers instead of the securities. 4 He shall take into account a monetary liability up to the agreed repayment amount towards the repo buyer. (2) 1 Securities acquired by the repo buyer in the context of non-genuine repurchase agreements shall be deducted from the inventory of the repo seller, who shall credit the monetary funds received from the repo buyer in their place. 2 The repo buyer shall attribute the securities to his inventory instead of the outgoing monetary funds. 3 If the market price of the repoed securities is below the agreed repayment amount,

1. the repoed securities shall again be attributed to the inventory of the repo seller, who must take into account a monetary liability towards the repo buyer up to the agreed repayment amount, and
2. a monetary claim against the repo seller up to the agreed repayment amount shall be credited at the repo buyer, who must deduct the securities from his inventory. (3) 1 Securities transferred in the context of lending transactions shall be deducted from the inventory of the lender and attributed to the borrower. 2 The borrower must take into account an in-kind liability for the return of the papers, which is counterbalanced by an in-kind claim at the lender of corresponding amount.

§ 6 Page 8 of 21 Basis of Calculation (1) 1 The basis of calculation for

1. cash according to Section 3 Paragraph 1 No. 5 and 7 is the market prices of the underlying securities with daily market valuation,
2. cash according to Section 3 Paragraph 1 No. 6 is the values of the underlying assets determined according to the corresponding valuation principles of the respective central bank, minus the valuation discount provided by the respective central bank,
3. cash according to Section 3 Paragraph 1 No. 8 is the repurchase prices,
4. cash according to Section 3 Paragraph 2 No. 8 and payment obligations according to Section 4 Paragraph 2 No. 7 to 9 is the repayment amounts,
5. securities positions and securities-related in-kind claims and in-kind liabilities in the context of repurchase and lending transactions is the market prices of the securities with daily market valuation,
6. the other cash and payment obligations is the book values. 2 Market prices are the officially determined prices on the respective reporting date or, if not available, the market values determined by the institution. 3 If the securities are officially quoted on several markets, the institution shall use market prices according to an internally established method that is to be applied uniformly and permanently and documented. 4 The determination of the market values must be documented by the institution for the last reporting date, the reporting dates of the past 24 months, and for the current reporting period, and submitted to the Federal Financial Supervisory Authority (BaFin) upon request. 5 With the exception of cash according to Sentence 1 No. 2, bonds and other fixed-income securities in inventory may be valued at 90 percent of the book value, and listed shares and other non-fixed-income securities in inventory may be valued at 80 percent of the book value, if the institution does not perform daily market valuation. 6 From the book values of the asset items, allowances for country risk, blanket allowances, and individual allowances must be deducted, if they do not exclude the crediting of the asset items according to Section 3 Paragraph 3 No. 1. (2) 1 If an institution is unable, for reporting technical reasons, to deduct the allowances from the respective asset items, it may apply a simplified procedure for deducting the allowances. 2 Under this procedure, corresponding to the proportion of the creditable liquidity items to the total sum of all assets to which the allowances relate, the total allowances formed shall be deducted from the cash a) of Maturity Band 1 (standard procedure) or b) from all maturity bands (alternative procedure). 3 If an institution decides on the alternative procedure, it must take into account the maturity structure underlying the cash when deducting the allowances. 4 Individual allowances that result in the non-crediting of the respective claims and bills may be disregarded. 5 Institutions intending to avail themselves of the simplified procedure must notify the Federal Financial Supervisory Authority and the Deutsche Bundesbank before first application. 6 The notification must specify which allowances the procedure is applied to and which assets are included. 7 The Federal Financial Supervisory Authority may prohibit the application of the simplified procedure if there are justified doubts that the liquidity-restricting effects resulting from allowances are not adequately reflected. (3) 1 A position denominated in a foreign currency shall be converted into Euro at the reference rate determined by the European Central Bank on the reporting date and published by the Deutsche Bundesbank (Euro reference rate). 2 In the conversion of currencies for which no Euro reference rate is published, the mid-rates from ascertainable buying and selling rates of the date shall be used as the basis. (4) Institutions may, deviating from Paragraph 3, continue to take into account internally used foreign currency exchange rates from their own risk models, which are approved for supervisory purposes, if they have consistently taken them into account before January 1, 2014.

§ 7 Remaining Maturities 1 The remaining maturity is considered to be

1. the period between the respective reporting date and the due date of the respective cash and payment obligations, subject to Numbers 2 to 6,
2. the respective notice period for uncalled call money, with a notice lock-in period added,
3. the period between the respective reporting date and the due date of the installment for claims and liabilities that are regularly to be amortized in installments, regardless of whether the installments contain an interest component or not,
4. the remaining business duration for in-kind claims from genuine repurchase and lending transactions with securities within the meaning of Section 3 Paragraph 1 as well as for resulting in-kind liabilities and securities positions of the repo seller from non-genuine repurchase agreements,
5. the remaining business duration plus the remaining maturities of the securities applicable at the end of the transaction for in-kind claims from genuine repurchase and lending transactions with securities other than those listed under Number 4 and for resulting in-kind liabilities and securities positions of the repo seller from non-genuine repurchase agreements, and
6. the remaining business duration for monetary claims and monetary liabilities from genuine and non-genuine repurchase agreements. 2 Early termination options must be taken into account for liabilities. 3 They must be disregarded for claims and securities in inventory. 4 For claims and liabilities that are regularly amortized in installments, the repayment amounts up to the respective installments must be posted to the relevant maturity bands. 5 Overnight funds and funds with daily call are not considered due daily. 6 They are treated as term deposits with a one-day maturity.

§ 8 (repealed) § 9 (repealed)

§ 10 Use of Institution-Specific Liquidity Risk Measurement and Control Procedures (1) 1 For the assessment of sufficient liquidity, the institution may, with permanent choice and the consent of the Federal Financial Supervisory Authority (BaFin), use its own liquidity risk measurement and control procedure instead of Sections 2 to 7, provided that the requirements according to Paragraph 3 are met and BaFin has confirmed its suitability for the purposes of this Regulation in writing upon the application of the institution. 2 BaFin may attach ancillary provisions, in particular conditions, to its consent and revoke consent already granted if the institution no longer meets the requirements according to Paragraph 3.

Page 11 of 21 (2) 1 The suitability of an institution-specific liquidity risk measurement and control procedure is assessed on the basis of an examination carried out by BaFin in cooperation with the Deutsche Bundes Bank according to Section 44 Paragraph 1 Sentence 2 of the Banking Act and is checked by follow-up examinations after the issuance of the suitability confirmation. 2 Material changes to the liquidity risk measurement and control procedure require a new suitability confirmation according to Paragraph 1. (3) 1 The institution must in particular meet the following requirements for the use of its own liquidity risk measurement and control procedure:

1. 1 The liquidity risk measurement and control procedure ensures, taking into account the specific institutional circumstances, the nature and complexity of the business conducted, and the size of the institution, an adequate ongoing determination and monitoring of liquidity risk and portrays the liquidity position in more detail and appropriately than when applying Sections 2 to 7. 2 In particular, the liquidity risk measurement and control procedure should also provide information on expected short-term net outflows, the possibility of raising unsecured financing, and the impact of stress scenarios. 3 The institution regularly checks compliance with the requirements according to Sentence 1.
2. 1 The institution has established suitable, quantitatively measurable upper limits for liquidity risks (limits) on the basis of the liquidity risk measurement and control procedure, also taking into account stress scenarios, which it regularly reviews. 2 To this end, the institution identifies parameters from its liquidity risk measurement procedure that are particularly suitable for an aggregated representation of the risk of insufficient liquidity of the institution, and documents at which level of these parameters it is exposed to a considerable, medium, and high risk of insufficient liquidity, as well as which measures it links to the reaching of one of the named levels by a parameter.
3. 1 The institution notifies the Deutsche Bundesbank and BaFin in writing immediately if one of the parameters according to Number 2 exceeds the level for a medium or high risk of insufficient liquidity and reports on the measures it has taken and intends to take to eliminate the danger. 2 The obligation to report the parameters according to Section 11 remains unaffected.
4. The liquidity risk measurement and control procedure and the internal limit system are used for the internal liquidity risk management and in the corporate management of the institution.

(4) 1 An institution with its seat in Germany that is a subordinate company of an institutional group or a financial holding group and meets the requirements of Section 2a Paragraph 5 of the Banking Act, or that is a parent company and meets the requirements of Section 2a Paragraph 5 of the Banking Act, may, with permanent choice and the consent of BaFin, refrain from applying Sections 2 to 7 if the institutional group or the financial holding group to which the institution belongs uses its own liquidity risk measurement and control procedure and BaFin has confirmed its suitability in writing. 2 Paragraphs 1 to 3 apply accordingly.

§ 11 Reporting of Parameters (1) 1 Institutions shall submit reports to the Deutsche Bundesbank regarding the requirements of Section 2 as of the status on the reporting date at the end of the month using the forms according to Annex 2 and 3 each by the 15th business day of the month following the reporting date. 2 Upon application of the institution, BaFin may grant an extension of the deadline. 3 For guarantee banks and credit guarantee associations, Sentence 1 applies with the proviso that the reports are to be submitted only twice a year as of the status on the reporting date at the end of May and the end of November each by the 15th business day of the month following the reporting date. (2) If an institution makes use of the option to use its own liquidity risk measurement and control procedure according to Section 10, BaFin shall, deviating from Paragraph 1, determine the content and form of the monthly reporting requirements in its individual written suitability confirmation for the respective liquidity risk measurement and control procedure according to Section 10. (3) 1 The reports according to Paragraphs 1 and 2 are i

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