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LM-11.2.6

The composition of HQLA is as follows:

Level 1 Assets

Level 1 assets comprise of an unlimited share of the total pool and are not subject to haircuts.

Level 1 assets are limited to:

(i) Coins and banknotes;
(ii) Assets with central banks in countries in which the LCR is being calculated, including cash reserves, to the extent that the CBB allows banks to draw-down these assets in times of stress;
(iii) Debt securities/Sukuk issued by Government of Bahrain or Gulf Cooperation Council (GCC) countries;
(iv) Debt securities/Sukuk issued or guaranteed by sovereigns, central banks, PSEs, the International Monetary Fund ('IMF'), the Bank for International Settlements ('BIS'), the Islamic Development Bank ('IDB') or its subsidiaries, the European Central Bank ('ECB') and European Commission ('EC'), or Multilateral Development Banks ('MDB') satisfying the following conditions:
a) Assigned a 0 percent risk weight as shown in Appendix A;
b) Traded in large, deep and active repo or cash markets and characterized by a low level of concentration;
c) Have a proven track record of reliable liquidity in the cash or repo market even during stressed market conditions;
d) Not an obligation of a financial institution or any of its subsidiaries.
(v) Where the sovereign has a non-0 percent risk weight, debt securities/Sukuk issued in domestic currency by the sovereign or central bank of the country in which the liquidity risk is being taken, or in the bank's home country; and
(vi) Where the sovereign has a non-0 percent risk weight, debt securities/Sukuk in foreign currencies issued by the sovereign or central bank up to the amount of the bank's stressed net cash outflows in that specific foreign currency arising from the bank's operations in that jurisdiction.

Level 2 Assets

Level 2 assets are subject to a 40 percent cap of the overall stock of HQLA assets after haircuts have been applied.

A. Level 2A assets

A 15 % haircut is applied to the current market value of each level 2A asset held in the stock of HQLA.

Level 2A assets are limited to the following;
(i) Debt securities/Sukuk issued or guaranteed by sovereigns, central banks, PSEs or multilateral development banks that satisfy all the following conditions:
a. Assigned a 20 percent risk weight, as per Appendix A;
b. Traded in large deep and active repo or cash markets and characterised by low level of concentration;
c. Have a proven track record of reliable source of liquidity in the markets (sale or repo) even during stressed market conditions (i.e. maximum price decline not exceeding 10 percent or the increase in haircut not exceeding 10 percent over a 30-day period during a relevant significant stress period); and
d. Not an obligation of a financial institution, or any of its affiliated entities.
(ii) Debt securities (including commercial paper)/Sukuk that can be monetised, and covered bonds that satisfy all of the following conditions:
a. Not issued by a financial institution or any of its affiliated entities;
b. In the case of covered bonds, not issued by the bank itself or any of its affiliated entities;
c. Either have a long-term credit rating from a recognized external credit assessment institution ('ECAI') of at least AA-or, in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating;
d. Traded in large, deep and active cash or repo markets and characterized by a low level of concentration; and
e. Have a proven track record of reliable liquidity in the markets, even during stressed market conditions (i.e. maximum price decline not exceeding 10 percent, or the increase in haircut not exceeding 10 percent over a 30-day period during a relevant period of significant liquidity stress).
B. Level 2B assets

Level 2B assets are limited to the following;
(i) Debt securities (including commercial paper)/Sukuk issued by non-financial institutions, subject to a 50 percent haircut, that satisfy all of the following conditions:
a. Debt securities/Sukuk issued by non-financial institutions, or one of their subsidiaries, and have a long-term credit rating between A+ and BBB- or equivalent, or in the absence of a long-term rating, a short-term rating equivalent to the long-term rating;
b. Traded in large deep and active repo, or cash markets characterized by a low level of concentration; and
c. Have a proven track record as a reliable source of liquidity in the markets even during stressed market conditions (i.e. maximum price decline not exceeding 20 percent. or the increase in haircut not exceeding 20 percent over a 30-day period during a relevant period of significant liquidity stress);
(ii) Common equity shares subject to a 50 percent haircut that satisfy all of the following conditions:
a. Not issued by a financial institution or any of its affiliated entities;
b. Exchange traded and centrally cleared;
c. A constituent of the major stock index in the home jurisdiction or where the liquidity risk is being taken;
d. Denominated in BHD, USD or in the currency of the jurisdiction where the liquidity risk is being taken;
e. Traded in large, deep and active repo or cash markets characterized by a low level of concentration; and
f. Have a proven track record as a reliable source of liquidity in the markets, even during stressed market conditions (i.e. maximum price decline of not exceeding 40 percent, or increase in haircut not exceeding 40 percent over a 30-day period during a relevant period of significant liquidity stress).

Appendix A provides the calculation of the caps and haircuts.

August 2018