[0]
In this example we will look at the bank’s balance sheet, and focus on one specific (significant) currency, the USD.
[4]
① From a gross perspective the banks has i) USD debit balances, loans to clients, amounting to USD 110 (short), and ii) USD credit balances, deposits from clients, amounting to USD 100 (long).
[34]
② The gross offset is consequently USD 100.
[60]
③ Netted this results in USD 10 debit/short
[85]
④ The bank can recognize USD 10 as a future inflow, as the debit balances are expected to be repaid. Form an LCR perspective inflow is considered as something good. However it is only taken into account for a mere 20%.
[102]
⑤ The bank is short USD 10, and needs to arrange funding by attracting USD from another bank for example.
[110]
⑥ This funding will eventually need to be repaid and is therefore recorded as outflow. Form an LCR perspective outflow is considered as something bad. Therefore it is taken into account for the full 100%.
[126]
⑦ The impact of the netted balances, the Net LCR effect, is the difference between ④ and ⑥, and leads in this example to a Net LCR effect of USD 8.
[168]
⑧ The amount of gross offset ② appears on both the debit as well as the credit side of the bank’s balance sheet. It is therefore both an inflow as well as an outflow.
[188]
But even though the amount is the same, the inflows and outflows do not cancel each other out. Inflow is taken into account for 20%, outflow for 25%. This results in a (5%) Gross effect of USD 5.
[244]
⑨ Overall Significant Currency LCR impact is 13 (short). The amount the bank needs to hold in HQLA to meet the Significant currency LCR requirement.
