5.2.5.12 Calculation of HQLA Transferability Restriction

Regulators across jurisdictions recognize the existence of liquidity transfer restrictions, for banks that operate in multiple jurisdictions. Such transfer restrictions have implications to the group-wide consolidated LCR calculations and hence require to be treated appropriately. OFS LRS, in the LCR consolidation process, includes the restricted HQLA from a subsidiary in the consolidated stock of HQLA only to the extent of that subsidiary’s liquidity needs i.e. its net cash outflow, in accordance with the regulatory requirements. The treatment of transferability restriction during consolidation is as follows:

1. The net cash outflows are computed for a subsidiary, on a consolidated basis. The consolidation entity is the subsidiary itself in this case. If the subsidiary is a leaf level entity, then the net cash outflow is calculated on a standalone basis.
2. The restricted and unrestricted stock of level 1, level 2A and level 2B is computed for the subsidiary on a consolidated basis. The flag F_TRANSFERABILITY_RESTRICTION will be derived as part of processing, based on the account country and currency.
3. The application checks whether the stock of restricted level 1 assets > net cash outflows. If yes, it includes the stock of restricted level 1 assets in the calculation of its immediate parent entity’s stock of HQLA up to the extent of its own net cash outflows computed as part of step 1. If no, the entire stock of restricted level 1 assets is included in the consolidated calculations.
4. The application checks whether the stock of restricted level 1 + level 2A assets > net cash outflows. If yes, it includes the stock of restricted level 2A assets in the calculation of its immediate parent entity’s stock of HQLA up to the extent of its own net cash outflows computed as part of step 1 less stock of restricted level 1 assets. If no, the entire stock of restricted level 2A assets is included in the consolidated calculations.
5. The application checks whether the stock of restricted level 1 + level 2A + level 2B assets > net cash outflows. If yes, it includes the stock of restricted level 2B assets in the calculation of its immediate parent entity’s stock of HQLA up to the extent of its own net cash outflows computed as part of step 1 less stock of restricted level 1 + level 2A assets. If no, the entire stock of restricted level 2B assets is included in the consolidated calculations.
6. The unrestricted level 1, 2A and 2B assets are included fully in the calculation of its immediate parent entity’s stock of HQLA
7. Steps 1 to 6 are repeated for each sub-consolidation level within the organization structure of the consolidation entity till the consolidation entity itself.

   Note:

   • The allocation of restricted assets is done in the descending order of asset quality in order to maximize the stock of HQLA.
   • This calculation is part of the LCR consolidation process. To get a complete view of the process, refer Consolidation, where the consolidation process is described.