The ECBC is urging lobbying of the EBA Board of Supervisors to push the case for covered bonds’ inclusion as Level 1 LCR assets, after some national representatives are said to have shown support for full alignment with Basel III at a recent EBA meeting.

The Board of Supervisors is the main decision-making body of the European Banking Authority (EBA), taking all policy decisions of the EBA, including adopting draft Technical Standards, Guidelines and Reports. It is due to meet on 11 December, which would be its last meeting before the 31 December deadline for the EBA to report to the European Commission (EC) on definitions of liquid assets that would count towards Liquidity Coverage Ratio (LCR) requirements.

In a public hearing on 30 October the EBA presented preliminary findings of an analysis it has been carrying out for this report, and these are seen as representing a strong case for covered bonds to be considered eligible as Level 1 LCR assets. (See here for previous coverage.)

At a recent EBA meeting where the matter was discussed representatives of some countries, including Denmark, Finland and Germany, are understood to have argued for the forthcoming EBA report to the EC to follow the results of the aforementioned analysis, meaning that covered bonds would be eligible as Level 1 assets. However, other country representatives are understood to have expressed support for a full alignment with the Basel III framework.

A compromise suggestion is said to have come from the UK, which would involve both views being presented in the EBA report to the EC.

Under Basel III covered bonds count as Level 2 assets for the purposes of LCR compliance, which would mean that they are subject to a 15% haircut and a 40% cap. There would be no such restrictions if covered bonds were allocated to the Level 1 LCR bracket.

The European Covered Bond Council yesterday (Tuesday) asked steering committee members to contact their national EBA representatives as soon as possible to reiterate the case for covered bonds and promote the option of not alligning CRD IV with Basel III.

According to a presentation on the 30 October LCR hearing, final draft reports on LCR liquid definitions will be presented to the “EBA Governance Structures” in November and to the Board of Supervisors in December.

The EBA was not able to respond to questions from The CBR by the time of publication.