
Contents
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16.1 Introduction 16.1 Introduction
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16.2 Definition and Purpose of HQLA 16.2 Definition and Purpose of HQLA
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16.3 Eligibility of Covered Bonds as HQLA under the Basel and EU Frameworks 16.3 Eligibility of Covered Bonds as HQLA under the Basel and EU Frameworks
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16.3.1 Liquidity Coverage Ratio 16.3.1 Liquidity Coverage Ratio
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16.3.2 Net Stable Funding Ratio 16.3.2 Net Stable Funding Ratio
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16.4 Eligibility of Securitizations as HQLA under the Basel and EU Frameworks 16.4 Eligibility of Securitizations as HQLA under the Basel and EU Frameworks
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16.4.1 Liquidity Coverage Ratio 16.4.1 Liquidity Coverage Ratio
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16.4.2 Interplay with the Securitization Regulation 16.4.2 Interplay with the Securitization Regulation
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16.4.3 Net Stable Funding Ratio 16.4.3 Net Stable Funding Ratio
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16.5 Preferential treatment of covered bonds and securitizations to take account of ‘Union specificities’ 16.5 Preferential treatment of covered bonds and securitizations to take account of ‘Union specificities’
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16.5.1 Extension of HQLA Definition to Include Covered Bonds 16.5.1 Extension of HQLA Definition to Include Covered Bonds
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16.5.2 Extension of HQLA Definition to Include Certain ABS 16.5.2 Extension of HQLA Definition to Include Certain ABS
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16.5.3 Policy Considerations behind the Preferential Treatment of Covered Bonds and Securitizations under the NSFR 16.5.3 Policy Considerations behind the Preferential Treatment of Covered Bonds and Securitizations under the NSFR
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16.6 Covered Bonds Directive: Harmonizing the Conditions for the Issue of Covered Bonds in the EU 16.6 Covered Bonds Directive: Harmonizing the Conditions for the Issue of Covered Bonds in the EU
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16.7 Conclusion 16.7 Conclusion
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16 Covered Bonds and Securitization Positions as HQLA
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Published:February 2022
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Abstract
This chapter reviews the differences in treatment of covered bond and securitisation positions with a view to calculating liquidity requirements (both the Liquidity Coverage Ratio and the Net Stable Funding Ratio) by Basel III on the one hand and the EU framework on the other. It begins by explaining the concept of high-quality liquid assets (HQLA). Covered bonds are debt obligations issued by banks and secured by a pool of cover assets to which investors have direct recourse as preferred creditors, while retaining a claim against the issuing bank in the event of default as ordinary creditors. Securitisations, on the other hand, represent transactions or schemes with an exposure or pool of exposures whose credit risk is tranched, which possess the following characteristics: (1) payments in the transaction or scheme depend on the performance of the exposure or pool of exposures; and (2) the subordination of tranches determines the distribution of losses throughout the ongoing life of the transaction or scheme. The chapter then addresses the implications of the EU’s efforts to integrate and improve the efficiency of the covered bonds market, culminating in the recent adoption of the Covered Bonds Directive and Regulation.
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