DE NEDERLANDSCHE BANK N.V. Supervisory Regulation on Liquidity Regulation of De Nederlandsche Bank N.V. of 6 December 2006, no. Juza/2006/02365/IH, providing for rules pursuant to Articles 108(2) and 111(6) of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft) regarding the liquidity items and their weightings (Supervisory Regulation on Liquidity) De Nederlandsche Bank N.V.; Having regard to Articles 108(2) and 111(6) of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft); Having consulted the Netherlands Bankers Association (Nederlandse Vereniging van Banken); Decides: Article 1 The liquidity items (assets and liabilities) as referred to in to Articles 108(2) and 111(6) of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft) are hereby established as listed in the Annex to the present Regulation. Article 2 The Liquidity Regulation (Regeling liquiditeit) 1 is hereby revoked. Article 3 This Regulation shall enter into force at the date of entry into force of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft). Article 4 This Regulation shall be cited as the Supervisory Regulation on Liquidity. This Regulation and the appurtenant explanatory notes shall be published in the Staatscourant *. De Nederlandsche Bank N.V., /s/ A. Schilder Executive Director /s/ D.E. Witteveen Executive Director 1 Staatscourant (Government Gazette) 2004, 118. * Government Gazette. 1
Annex to Article 1 Liquidity values of assets and liabilities as referred to in Articles 108(2) and 111(6) of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft) ASSETS M WEEK MONTH 1. Banknotes/coins 2. Receivables from central banks (including the ECB) 1 Demand deposits 2 Amounts receivable M 3 Receivables in respect of reverse repos M 4 Receivables in the form of securities or tier 2 eligible assets M d* d* 3. Collection documents 1 Available on demand 2 Receivable M 4. Readily marketable debt instruments/ecb eligible assets 4.0 Issued by public authorities and central banks 1 ECB tier 1 eligible assets 95** 95** 2 ECB tier 2 eligible assets, deposited 85** 85** 3 ECB tier 2 eligible assets, not deposited 85 85 4 Other marketable debt instruments, Zone A 95 95 5 Other marketable debt instruments, Zone B 70 70 4.1 Issued by credit institutions 1 ECB tier 1 eligible assets 90** 90** 2 ECB tier 2 eligible assets, deposited 80** 80** 3 Other debt instruments qualifying under the 90 90 CAD 4 Other liquid debt instruments 70 70 4.2 Issued by other institutions 1 ECB tier 1 eligible assets 90** 90** 2 ECB tier 2 eligible assets, deposited 80** 80** 3 Other debt instruments qualifying under the 90 90 CAD 4 Other liquid debt instruments 70 70 5. Amounts receivable 5.0 Branches and banking subsidiaries not included in reports 2 Amounts receivable in respect of securities M) 3 Other amounts receivable M 90 5.1 Other credit institutions 2
2 Amounts receivable in respect of securities M) 3 Other amounts receivable M 90 5.2 Public authorities 2 Amounts receivable in respect of securities M) 3 Other amounts receivable M 90 5.3 Other professional money market participants 2 Amounts receivable in respect of securities M) 3 Other amounts receivable M 90 5.4 Other counterparties 1 2 Demand deposits Amounts receivable in respect of securities M) 0 0 3 Other amounts receivable, including expected early redemptions M 50 40 6. Receivables in respect of repo and reverse repo and securities lending 6.0 Reverse repo (other than with central banks) 1 Receivables in respect of bonds M 2 Receivables in respect of equities M 6.1 Repo (other than with central banks) 1 Receivables in the form of bonds M 90/d*/** 90/d*/** 2 Receivables in the form of equities M 70 70 6.2 Securities lending 1 Securities in stock on account of securities M lending 2 Securities receivable on account of securities lending 7. Other securities and gold 1 Other liquid equities 70 70 2 Unmarketable equities 0 0 3 Unmarketable bonds M 4 Gold 90 90 8. Official standby facilities 1 Official standby facilities received 9. Receivables in respect of derivatives M *** *** 10. Total 3
LIABILITIES M WEEK MONTH 11. Moneys borrowed from central banks 1 Overdrafts (payable within one week) 2 Other amounts owed M 12. Debt instruments issued by the bank itself 1 2 Issued debt securities Subordinated debt M M 13. Fixed-term deposits and other borrowings 13.0 Branches and banking subsidiaries not included in reports 1 Amounts owed in respect of securities M) 2 Deposits and other funding fixed maturity M 90 13.1 Other credit institutions 1 Amounts owed in respect of securities M) 2 Deposits and other borrowings fixed maturity M 90 13.2 Other professional money market participants 1 Amounts owed in respect of securities M) 2 Deposits and other borrowings fixed maturity plus interest payable M 90 13.3 Other counterparties 1 Amounts owed in respect of securities M) 2 Deposits and other funding fixed maturity M 50 40 plus interest payable 3 Fixed-term savings deposits M 20 20 14. Liabilities in respect of repo and reverse repo and securities borrowing 14.0 Repo (other than with central banks) 1 Amounts owed in respect of bonds M 2 Amounts owed in respect of equities M 14.1 Reverse repo (other than with central banks) 1 Amounts owed in the form of bonds M 2 Amounts owed in the form of equities M 14.2 Securities borrowing 1 Negative securities stock on account of securities borrowing 2 Securities deliverable in respect of securities borrowing M 4
15. Credit balances and other moneys borrowed with an indefinite effective term 15.0 Branches and banking subsidiaries not included in reports 15.0 1 Current account balances and other demand deposits 50 15.1 Other credit institutions 1 Balances on vostro accounts of banks 50 50 2 Other demand deposits 50 15.2 Other professional money market participants 15.3 Savings accounts 1 Ordinary savings accounts 2.5 10 15.4 Other 1 Demand deposits and other liabilities 5 20 2 Other amounts due or to be accounted for, including the balance of forward and amounts due to social and provident funds 5 20 16. Official standby facilities 1 Official standby facilities granted 17. Liabilities in respect of derivatives 1 Known liabilities in respect of derivatives M *** *** 2 Unknown liabilities in respect of derivatives *** *** 18. Other contingent liabilities and irrevocable credit facilities 1 Unused irrevocable credit facilities, 2.5 10 including underwriting of issues 2 Bills accepted M 3 Credit-substitute guarantees 2.5 10 4 Non-credit-substitute guarantees 1.25 5 5 Other off-balance sheet liabilities 1.25 5 20. Total Legend: M = To be included in the maturity schedule. M) = If settlement is due within one week or open-ended, to be included in first week, for the rest in the maturity schedule. * = Less the applicable discount. ** = Either at stated percentage or at percentages applicable for ECB/ESCB collateral purposes. *** = Calculated amount for the period concerned. 90/d*/** = 90% or less applicable discount (provided the method is applied consistently). 5
Explanatory notes General The Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft) (hereinafter referred to as the Decree) provides for rules for credit institutions and clearing institutions for the determination of actual and required liquidity. Article 108(1) of the Decree provides for the grounds on which required liquidity is determined and Article 111(1) does the same for the determination of actual liquidity. The Decree also lists the items which must be included in the liquidity calculations. The present Regulation includes an Annex listing the items (and sub-items) which count towards actual and required liquidity of credit institutions and clearing institutions as well as their weightings. The Annex is identical to the Annex to the current Liquidity Regulation (Regeling liquiditeit) under the Act on the Supervision of the Credit System 1992 (Wet toezicht kredietwezen 1992). For the rest, the contents of that Regulation have been taken over in the present Regulation. The Financial Supervision Act (Wet op het financieel toezicht) involves no changes in liquidity supervision. Taken together, Articles 108 to 111 of the Decree and the present Supervisory Regulation on Liquidity provide a for a regime which should be identical with that currently in force. Hence, the switch involves no substantive changes in policy. In accordance with the provisions of Articles 108(2) and 111(6) of the Decree, the Annex to the present Regulation lists the elements which must be included in the calculation of liquidity as well as their weightings. Administrative costs The present Regulation does not involve any new administrative costs for the business sector. The present Regulation was submitted in draft form to the Advisory Committee on Administrative Costs (Adviescollege toetsing administratieve lasten) on 26 October 2006. Considering its selection criteria, the Committee decided against issuing recommendations on the draft Regulation. Explanatory notes to the Annex Gold Gold (whether physical or in the form of gold certificates, etc.) is included at a liquidity value of 90% of market value. Securities Securities should be included at a liquidity value obtained by applying the indicated weighting percentage to their market value. To calculate the liquidity value of ECB tier 1 and tier 2 eligible assets, the percentages applied by the ECB/ESCB for collateral should, in principle, be used. In respect of tier 2 collateral, this only applies to the collateral deposited with the central bank. For debt securities not qualifying as ECB/ESCB collateral ( other marketable debt securities ), the indicated collateral percentages (liquidity value percentages) apply, regardless of the maturity of the debt instrument. At their discretion, institutions may apply the fixed weighting percentages for debt securities accepted by the ECB/ESCB instead of the ECB/ESCB collateral percentages. Marketable debt instruments with a residual maturity of less than one week (one month) may, if so desired, be included at redemption value in the weekly (monthly) column. Non-liquid equities are not assigned a liquidity value and unmarketable debt instruments are included in the maturity schedule at redemption value. Securities qualifying as liquid are securities traded on a daily basis in an organised market within the meaning of the 6
definition in the EC Investment Services Directive where a fair daily turnover is achieved relative to the amount issued. The institution itself must make the selection on the basis of the criteria indicated, and must be able to motivate its selection. Liquid securities received as collateral, which the institution is allowed to sell (temporarily), pledge as collateral or lend under an agreement with the pledgor, may be reported as actual liquidity at the applicable discount. Amounts receivable and payable (assets/liabilities) For all borrowing and lending, the expected cash flows (interest plus repayments) should, in principle, be included in the respective maturity bands. Institutions may choose whether or not to include interest receipts/payments. Contingent liabilities as Clearing Members Where an institution has potential liabilities towards a clearing organisation in the form of potential margin obligations in respect of clients positions, the associated liquidity risk should be calculated using a proxy of the institution itself. The calculation method used must be agreed with De Nederlandsche Bank. This concerns, for instance, the guarantee risk to which Options Clearing Members are exposed in connection with client (including of market makers and floor brokers) and a comparable risk incurred by Securities Clearing Members affiliated to the AEX between the transaction and settlement dates. The risk should be accounted for under unknown liabilities in respect of derivatives. Repo/reverse repo and securities borrowing and lending Repo are accounted for on a gross basis. This means that, contrary to the balance sheet valuation rules (Recommendations for the Annual Accounts), the assets serving as collateral are shown as a deduction from the actual stock of securities and matched by a receivable in the form of securities, an increase in cash and a liability equal to the amount of the funds borrowed. The receivable in the form of securities should be entered as a scheduled item on the assets side, under the applicable due date and at the liquidity value of the securities concerned. If no due date has been fixed, the entry should be made in the first maturity band column. In the case of a reverse repo, the opposite applies; this means, among other things, that securities received on a temporary basis should be included as actual liquidity at their liquidity value and that, against this, a liability in the form of securities must be included at market value in the maturity schedule. Liabilities expressed in securities must, in principle, be entered in the maturity schedule at the securities market value at a weighting percentage of %. With respect to (reverse) repos in bonds and equities, an adjustment may be made in the calculation of total actual liquidity, in the form of an addition to actual liquidity equal to the lower of (a) the liabilities in bonds (equities) and (b) the value of the actual stock of bonds (equities) and receivables in bonds (equities) with the same maturity as that applying to the liabilities in bonds (securities) on account of repos, multiplied by the discount applicable to bonds (equities), less a disallowance (see below). The discount applicable to bonds (equities) is equal to the difference between % and the liquidity value percentage ( stock percentage ) applicable to the securities in question. In the case of bonds, for instance, an adjustment of 10% (i.e. % 90%) and in the case of equities a 30% adjustment (% 70%). The deductible disallowance (an additional liquidity requirement) is calculated, in the case of bonds, from the value of that part of the liabilities in bonds that is matched by the actual bond stock position (not including bonds receivable under repo contracts) and equals 1% of this matched amount. The disallowance in respect of equities is calculated in the same 7
way except that it equals 5% of the matched amount. Securities borrowing and lending are basically treated in the same way, but here the condition applies that, under the agreement, the securities borrowed are freely available to the institution and can be readily liquidated. Otherwise, no liquidity value may be assigned to securities borrowed or obtained as collateral. With respect to securities lending, provided the netting conditions as laid down in 4011-02.2.3 (contractual netting) in the Credit System Supervision Manual (Handboek Wtk) are met and provided the securities lending are effected within an Overseas Lending Agreement (OSLA), the following applies: Net collateral received in the form of securities (equities and bonds) is entered, at (market) value, under item 6.2.1 Securities in stock on account of securities lending. In addition, a liability in securities is entered under item 14.2.2 Securities deliverable in respect of securities borrowing. If the net (market) value of securities lent exceeds that of collateral received (securities and cash), the balance is entered under item 6.2.2 Securities receivable on account of securities lending. Net collateral given in the form of securities (equities and bonds) is entered at (market) value under item 14.2.1, Negative securities stock on account of securities borrowing. Items not to be included in the calculation The following items are not included in the calculation: - amounts receivable and bills in respect of which a specific provision has been made; - equities of affiliated undertakings; - securities received as collateral which are not at the disposal of the institution for (temporary) sale or lending, and - securities and deposits held to cover variation margin still to be settled (e.g. the accumulated amount relating to exchange-listed options). Pledged collateral in the maturity schedule Securities and deposits pledged as collateral in the context of repo or securities borrowing/lending, lending facilities (as with central banks) or (initial) margin requirements must be included unless indicated otherwise in the maturity schedule for the term of the transaction and, where applicable, less the amount due in respect of variation margin, on the basis of the (remaining) term of the associated transaction and, in the case of securities, either at collateral value at the reporting date, or provided the method is applied consistently at a value obtained by applying the indicated weighting percentage. Securities pledged as collateral cannot, of course, be included in the stock of securities. De Nederlandsche Bank N.V., /s/ A. Schilder Executive Director /s/ D.E. Witteveen Executive Director 8