SAMA’s General Guidance Concerning Amended LCR

(ii) Unsecured wholesale funding run-off 85. For the purposes of the LCR, "unsecured wholesale funding” is defined as those liabilities and general obligations that are raised from non-natural persons (i.e. legal entities, including sole proprietorships and partnerships) and are not collateralized by legal rights to specifically designated assets owned by the borrowing institution in the case of bankruptcy, insolvency, liquidation or resolution. Obligations related to derivative contracts are explicitly excluded from this definition. 86. The wholesale funding included in the LCR is defined as all funding that is callable within the LCR’s horizon of 30 days or that has its earliest possible contractual maturity date situated within this horizon (such as maturing term deposits and unsecured debt securities) as well as funding with an undetermined maturity. This should include all funding with options that are exercisable at the investor’s discretion within the 30 calendar day horizon. For funding with options exercisable at the bank’s discretion, SAMA would take into account reputational factors that may limit a bank's ability not to exercise the option. (This could reflect a case where a bank may imply that it is under liquidity stress if it did not exercise an option on its own funding.) In particular, where the market expects certain liabilities to be redeemed before their legal final maturity date, banks and SAMA should assume such behavior for the purpose of the LCR and include these liabilities as outflows. 87. Wholesale funding that is callable (This takes into account any embedded options linked to the funds provider’s ability to call the funding before contractual maturity.) by the funds provider subject to a contractually defined and binding notice period surpassing the 30-day horizon is not included. 88. For the purposes of the LCR, unsecured wholesale funding is to be categorised as detailed below, based on the assumed sensitivity of the funds providers to the rate offered and the credit quality and solvency of the borrowing bank. This is determined by the type of funds providers and their level of sophistication, as well as their operational relationships with the bank. The runoff rates for the scenario are listed for each category. (Refer to Paragraph 86-88 of Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools – Jan 2013 ) (a) Unsecured wholesale funding provided by small business customers: 5%, 10% and higher 89. Unsecured wholesale funding provided by small business customers is treated the same way as retail deposits for the purposes of this standard, effectively distinguishing between a "stable" portion of funding provided by small business customers and different buckets of less stable funding defined by each jurisdiction. The same bucket definitions and associated run-off factors apply as for retail deposits. 90. This category consists of deposits and other extensions of funds made by nonfinancial small business customers. “Small business customers” are defined in line with the definition of loans extended to small businesses in paragraph 231 of the Basel II framework that are managed as retail exposures and are generally considered as having similar liquidity risk characteristics to retail accounts provided the total aggregated funding (“Aggregated funding” means the gross amount (i.e. not netting any form of credit extended to the legal entity) of all forms of funding (e.g. deposits or debt securities or similar derivative exposure for which the counterparty is known to be a small business customer). In addition, applying the limit on a consolidated basis means that where one or more small business customers are affiliated with each other, they may be considered as a single creditor such that the limit is applied to the total funding received by the bank from this group of customers.) raised from one small business customer is less than €1 million (on a consolidated basis where appl