A larger haircut is applied to the current market value of each Level 2B asset held in the stock of HQLA. Level 2B assets are limited to the following:

(a) Residential mortgage backed securities (RMBS) that satisfy all of the following conditions may be included in Level 2B, subject to a 25% haircut:

• not issued by, and the underlying assets have not been originated by the bank itself or any of its affiliated entities;
• have a long-term credit rating from a recognised ECAI of AA or higher, or in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration;
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, ie a maximum decline of price not exceeding 20% or increase in haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress;
• the underlying asset pool is restricted to residential mortgages and cannot contain structured products;
• the underlying mortgages are “full recourse’’ loans (ie in the case of foreclosure the mortgage owner remains liable for any shortfall in sales proceeds from the property) and have a maximum loan-to-value ratio (LTV) of 80% on average at issuance; and
• the securitisations are subject to “risk retention” regulations which require issuers to retain an interest in the assets they securitise.

(b) Corporate debt securities (including commercial paper)(23) that satisfy all of the following conditions may be included in Level 2B, subject to a 50% haircut:

• not issued by a financial institution or any of its affiliated entities;
• either (i) have a long-term credit rating from a recognised ECAI between A+ and BBB- or in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating; or (ii) do not have a credit assessment by a recognised ECAI and are internally rated as having a PD corresponding to a credit rating of between A+ and BBB-;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration; and
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, ie a maximum decline of price not exceeding 20% or increase in haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress.

(c) Common equity shares that satisfy all of the following conditions may be included in Level 2B, subject to a 50% haircut:

• not issued by a financial institution or any of its affiliated entities;
• exchange traded and centrally cleared;
• a constituent of the major stock index in the home jurisdiction or where the liquidity risk is taken, as decided by the supervisor in the jurisdiction where the index is located;
• denominated in the domestic currency of a bank’s home jurisdiction or in the currency of the jurisdiction where a bank’s liquidity risk is taken;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration; and
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, ie a maximum decline of share price not exceeding 40% or increase in haircut not exceeding 40 percentage points over a 30-day period during a relevant period of significant liquidity.