61. Foreign currency haircuts limitation (LCR, Basel III)

Definition

Haircuts for foreign currency HQLA used under Option 2 would apply only to HQLA in excess of a threshold specified by supervisors which is not greater than 25%.(29) This is to accommodate a certain level of currency mismatch that may commonly exist among banks in their ordinary course of business.

Additional information:

(29) The threshold for applying the haircut under Option 2 refers to the amount of foreign currency HQLA used to cover liquidity needs in the domestic currency as a percentage of total net cash outflows in the domestic currency. Hence under a threshold of 25%, a bank using Option 2 will only need to apply the haircut to that portion of foreign currency HQLA in excess of 25% that are used to cover liquidity needs in the domestic currency.

Related terms:

Parent term:

(b) Potential options for alternative treatment (LCR, Basel III)

Sibling terms:

58. Option 1 – Contractual committed liquidity facilities from the relevant central bank, with a fee (LCR, Basel III)
59. Option 2 – Foreign currency HQLA to cover domestic currency liquidity needs (LCR, Basel III)
60. Haircut adjustments (LCR, Basel III)
62. Option 3 – Additional use of Level 2 assets with a higher haircut (LCR, Basel III)