The European Banking Authority launched a consultation on the process for defining highly liquid assets in the Liquidity Coverage Ratio yesterday (Thursday), publishing a discussion paper outlining its proposed methodology.

The EBA has been charged with coming up with appropriate uniform definitions of high and extremely high liquidity and credit quality transferrable assets, and appropriate haircuts, and reporting to the European Commission in the second half of this year. The consultation runs until 21 March.

The EBA said that the first step of its proposed analysis will involve an assessment of a range of asset classes against fundamental definitions of liquid assets set out in the draft Capital Requirements Regulation. It will then perform a detailed quantitative assessment of the liquidity of individual assets to produce a ranking of the relative liquidity of different asset classes. Finally, it will identify the features that are of particular importance to market liquidity, with the aim of providing definitions of the characteristics assets should have to qualify as highly or extremely highly liquid.

The discussion paper can be found here.