ECB exposes LCR window-dressing
Banks use collateral swaps and term deposits to improve key liquidity ratios
Liquidity rules are being gamed, the European Central Bank (ECB) has found.
The supervisor conducted a specialised stress test that found a number of banks have taken steps to make themselves look good under the lens of the liquidity coverage ratio (LCR) – a key post-crisis gauge of funding risk – by using dubious trades to fluff their liquid asset buffers and borrowing cash in such a way that it doesn’t show up in the calculation.
The LCR shows the amount of high-quality liquid assets (HQLAs
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