Liquidity of institutions
The Regulation on the liquidity of institutions (Liquidity Regulation; Liquiditätsverordnung) came into force on 1 January 2007. It supersedes Principle II on the liquidity of institutions previously in force. The Liquidity Regulation gives concrete shape to the provisions of section 11 (1) sentence 1 and section 51b (1) sentence 1 of the German Banking Act (Kreditwesengesetz), which require institutions and housing undertakings with a saving facility to have sufficient liquidity at all times.
Pursuant to Article 412 (5) of Regulation (EU) No 575/2013 (Capital Requirements Regulation - CRR), Member States may maintain national provisions in the area of liquidity requirements only until the binding minimum ratio for liquidity coverage requirements is fully introduced. With the full introduction of the liquidity coverage ratio (LCR) at 100 percent as of 1 January 2018 it was therefore necessary to suspend the application to CRR credit institutions of the Liquidity Regulation based on national law. For this reason, the scope of application of the Liquidity Regulation was restricted with the Second Regulation amending the Liquidity Regulation of 22 December 2017. The Liquidity Regulation continues to apply only to institutions which are not subject to the provisions of Articles 411 to 428 of the CRR. These include guarantee banks, housing enterprises with a savings facility and certain CRR investment firms.
An institution’s liquidity is sufficient pursuant to the Liquidity Regulation if the funds – calculated from the respective reporting date – available for the next month (maturity band 1) at least cover the expected payment outflows during that period. This is assessed by means of a liquidity ratio that has to be reported monthly; this ratio, which is calculated as the quotient of the available funds and the callable payment obligations in the first maturity band, must be at least equal to one.
In addition, institutions are required to calculate what are known as observation ratios, which provide information on expected liquidity flows in the second, third and fourth maturity bands (covering a period of more than one month to one year).
The Liquidity Regulation requires that institutions generally submit monthly returns to the Deutsche Bundesbank by the 15th business day after the end-of-month reporting date (forms LV 1 and LV 2).