4.2.4 Determination of the Maturity of Cash Flows

For the purposes of calculating the Liquidity Coverage Ratio and the components thereof, a bank assumes an asset or transaction’s maturity is based on the following assumptions:

1. If an instrument or transaction is subject to outflow, then the earliest possible contractual maturity date or the earliest possible date the transaction occurs is considered. The application checks if the counter party has an option to reduce the maturity. The following options must be considered which results either in reducing or extending the maturity date:
   1. In case an investor or funds provider has an option that reduces the maturity, then the application considers the earliest date as the maturity date. If the option is exercised then it means that the maturity date is equal to the earliest date or latest date.
   2. In case an investor or funds provider has an option that extends the maturity, then the application assumes that the investor or funds provider does not exercise the option to extend the maturity. This means that the maturity date equals to the original maturity date if the option is not exercised.
   3. In case a covered company holds an option to reduce the maturity of the transaction, the application assumes that the option is exercised. If the option is exercised then it means that the maturity date is equal to the earliest date or latest date.
   4. In case a covered company holds an option to extend the maturity of the transaction, the application assumes that the option is not exercised by the covered company and calculates the maturity of the transaction. This means the existing maturity date continues.
      The application considers the following exceptions to the above mentioned rule (d):

      • If a long term callable bond which is issued by a covered company has an original maturity greater than one year and the call option held by the covered company does not go into effect until at least six months after the issuance, the original maturity of the bond is considered for purposes of the LCR.

        OR

      • If the covered company holds an option permitting it to repurchase any of its obligation from a sovereign entity, a U.S. government-sponsored enterprise, or a public sector entity, then the original maturity of the obligation is considered for calculation of LCR.
   5. In case the covered company has an option that extends the maturity of an obligation it has issued, then the application does not exercise this option to extend the maturity. This means the extended maturity date is considered for the purpose of computing LCR.
   6. In case an option is subject to a contractually defined notice period, then the application determines the earliest possible contractual maturity date regardless of the notice period. This mean that the application considers the earliest date as the maturity date.
2. If an instrument or transaction is subject to inflows, then the application considers the latest possible contractual maturity date or the latest possible date the transaction occurs. The following options are considered which results in increasing the maturity date:
   1. In case the borrower has an option which results in extending the maturity, then application assumes that the borrower exercises the option and consider to extend the maturity date to the latest possible date. This means that the maturity date is equal to the earliest date or latest date.
   2. In case the borrower has an option which reduces the maturity, then the application assumes that the borrower will not exercise the option to reduce the maturity. This means that the existing maturity date is continued.
   3. In case the covered company has an option that reduces the maturity then the application assumes that it will not exercise the option to reduce the maturity. This means that the existing maturity date is continued.
   4. In case the covered company has an option that extends the maturity of an instrument or transaction, the application assumes that it will exercise the option to extend the maturity to the latest possible date. If the option is exercised then it means that the maturity date is equal to the earliest date or latest date.
   5. In case any option is subject to a contractually defined notice period, then the application considers it while calculating maturity for Inflows.
3. The maturity date of secured lending transactions or inflow-generating asset exchanges is the later of the contractual maturity date of the secured lending transaction or inflow-generating asset exchange and the maturity date of the secured funding transaction or outflow-generating asset exchange for which the received collateral was used.
4. The maturity date for a transaction with financial sector entities and which is not an operational deposit is considered by the application to be the first calendar day after the calculation date for the purpose of LCR.
5. Maturity for transactions related to broker-dealer segregated account inflow amount is considered by the application to be based on calculation performed by the broker-dealer for release of assets to its customers. In case if a broker-dealer performs this calculation on a daily basis, then the inflow is considered by the application to be on the first day of the 30 calendar-day period, if a broker-dealer performs the calculation on a weekly basis, then the inflow is considered on the date of the next regularly scheduled calculation.

Note:

The revised maturity is considered for computation of LCR. The maturity computation for cash flows is calculated as part of LRM application. However, an assumption is defined to move the cash flows of financial sector entities, which are not an operational deposit, for the purpose of LCR calculation.