The European Central Bank (ECB) sees no need to extend beyond December 2021 the liquidity relief measure that allowed banks to operate with a liquidity coverage ratio below 100%.
In March 2020 the ECB encouraged banks to make use of their liquidity buffers to support the economy. At the time the ECB also committed to allowing banks to operate with a liquidity coverage ratio below 100% until at least the end of 2021 to give them enough time to replenish these buffers.
A bank’s liquidity coverage ratio is the relationship between its buffer of high-quality liquid assets and the cash outflows it may face over a 30-day period of liquidity stress. Banks must maintain a liquidity coverage ratio of above 100% during normal times so they can use that buffer in the event of liquidity stress. This means a bank’s highly liquid assets must at least match the liquidity it would expect to leave the bank within 30 days in a stress situation.
As the specific relief measure granted at the outset of the pandemic has not been extended, the ECB expects all banks to maintain a liquidity coverage ratio of above 100% as of 1 January 2022. Currently the aggregate liquidity coverage ratio of banks under direct ECB supervision stands at about 170%, up from about 140% before the pandemic.
More details on pandemic-related measures are available in the FAQs.
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This news item was originally published by the Malta Financial Services Authority (MFSA MT). For more information, see the Source Link.