PRU A10.3 PRU A10.3 The Liquidity Mismatch Approach
PRU A10.3.1(1) Outflows (liabilities) must be included in the sight-eight day time band according to their earliest contractual maturity.(2) Contingent liabilities may be excluded from the sight-eight day time band only if there is a likelihood that the conditions necessary to trigger them will not be fulfilled.(3) Inflows (assets) must be included in the sight-eight day time band according to their latest contractual maturity, except that the following assets must be included regardless of their contractual maturity:(a) undrawn committed standby facilities provided by other banks; and(b) marketable assets, at a discount.(4) Assets which have been pledged as Collateral must be excluded from the sight-eight day time band.
Including marketable assets in the Maturity Ladder
PRU A10.3.2(1) Assets which are readily marketable are included in the Maturity Ladder in the sight-eight days time band, generally at a discount to their recorded value calculated in accordance with (4).(2) An asset is regarded as readily marketable if:(a) prices are regularly quoted for the asset;(b) the asset is regularly traded;(c) the asset may readily be sold, including by repurchase agreement, either on an exchange, or in a deep and liquid market for payment in cash; and(d) settlement is according to a prescribed timetable rather than a negotiated timetable.(3) The Regulator may allow, on a case by case basis, an Authorised Person to include a longer term asset which is relatively easy to liquidate in the sighteight days time band.(4) The discount factor to be applied to types of marketable assets must be determined by reference to the following table and Rules A10.2.6 to A10.2.9:
Marketable Asset Discount factor Level 1 HQLA 0% Level 2A HQLA 15% Level 2B HQLA – eligible asset –backed securities 25% Level 2B HQLA – other HQLA 50% Non-HQLA eligible trading assets that are Investment Grade 60%(5) The Regulator may vary the discount factors to reflect the conditions of a particular market or institution.