What changed
Retail deposits enabled with internet and mobile banking (IMB) now have a 2.5% higher run-off factor: stable deposits go from 5% to 7.5%, less stable from 10% to 12.5%. Unsecured wholesale funding from non-financial small business customers follows the same treatment. Level 1 HQLA in government securities must be valued using haircuts aligned with LAF and MSF margin requirements. Deposits from non-financial entities like trusts, partnerships, and LLPs are reclassified from 'other legal entities' (100% run-off) to 'non-financial corporates' (40% run-off), unless treated as small business customers.
What it means for you
Banks will need to hold more high-quality liquid assets against retail deposits with digital access, increasing liquidity requirements for such deposits. The reclassification of non-financial entity deposits from 100% to 40% run-off rate reduces the liquidity burden for banks, freeing up capacity. Aligning HQLA haircuts with LAF/MSF ensures consistency in valuation but may require adjustments in collateral management.
What you must do
- Update LCR computation models to reflect the new run-off rates for IMB-enabled retail deposits and non-financial entity deposits.
- Reclassify deposits from trusts, partnerships, LLPs, and similar entities as 'non-financial corporates' for LCR purposes, unless they qualify as small business customers.
- Adjust valuation of Level 1 HQLA government securities to use haircuts consistent with LAF and MSF margin requirements.
- Review deposit contracts to identify any deposits pledged as collateral, as they must now be treated as callable for LCR.
- Train treasury and risk teams on the revised guidelines to ensure compliance from the effective date.
Who it affects
All commercial banks (excluding Payments Banks), Treasury departments, Risk management teams, Retail and wholesale deposit operations
What is the new run-off rate for retail deposits with internet and mobile banking?
Stable retail deposits with IMB now have a 7.5% run-off factor (up from 5%), and less stable deposits have 12.5% (up from 10%).
How are deposits from trusts and partnerships treated under the new LCR rules?
Deposits from non-financial entities like trusts, partnerships, and LLPs are now categorized as 'non-financial corporates' with a 40% run-off rate, instead of the previous 100% for 'other legal entities'.
What happens to a fixed deposit that is pledged as collateral for a loan?
Such deposits, even if non-callable, must be treated as callable for LCR purposes, and the provisions for callable deposits apply.