Liquidity Return Guidance Notes

Summary

These are the Bermuda Monetary Authority's guidance notes explaining how to complete the Liquidity Return, a quarterly prudential report used to monitor whether licensed banks and deposit companies hold enough liquid assets to meet obligations as they fall due. The notes set out the maturity, valuation, netting and off balance sheet treatment rules that institutions must apply when populating the return, rather than imposing new standalone obligations beyond the return itself.

• Reporting basis: The return is completed on an unconsolidated basis as at the end of March, June, September and December, with all currencies combined and translated to Bermuda dollars at the closing spot mid price on the reporting date.
• Maturity treatment: Cash outflows should be assumed at earliest contractual maturity and inflows at latest contractual maturity (a worst case approach), with specific rules for deposits, loans, options, non-business days, and one day call funds.
• No netting: Claims and liabilities must be reported gross; institutions cannot net claims against debts owed to the same counterparty even where a legal right of set off exists.
• Provisions and non-performing items: Items are reported net of specific provisions, and cashflows from non-performing or doubtful assets should not be shown as receivable.
• Marketable assets: Qualifying marketable assets (defined by Zone A/Zone B status, credit ratings, index membership, etc.) may be placed in the Sight to 1 week band, generally at a discount, with both gross and discounted values recorded.
• Off balance sheet items: Detailed treatment is given for forward sales/purchases, repos/reverse repos, stock lending/borrowing, swaps, FRAs and futures, requiring consistent methodology and disclosure to the Authority of the method used for options reporting.

The document is technical guidance for completing a specific regulatory return; it does not itself state a commencement date, transition period or penalty regime, but compliance with its instructions is necessary for institutions to correctly file the Liquidity Return each quarter.

Key obligations

• Institutions licensed under the Banks and Deposit Companies Act 1999 must complete the Liquidity Return on an unconsolidated basis as at the end of March, June, September and December each year.
• All currencies must be combined and translated into Bermuda dollars at the closing spot mid price on the reporting date.
• Institutions must report claims and liabilities gross, without netting claims against debts owed to the same counterparty or group.
• Cashflows from non-performing, poorly performing or doubtful assets must not be included as receivable in the time band columns.
• Institutions must record both the gross value and the value net of discounts for marketable assets.
• Institutions must apply worst-case maturity assumptions: outflows at earliest contractual maturity, inflows at latest contractual maturity.
• Institutions must inform the Authority of the method adopted for reporting options (Method 1 or Method 2) and record this in their liquidity policy statement, using it consistently for inflows and outflows.
• Where an institution feels a security meets the criteria for particularly high quality debt instruments, it must contact the Authority and obtain consent before reporting it in that category.
• Institutions should discuss with the Authority the appropriate treatment of dependencies of Zone A countries not explicitly listed.

Applies to

banks, deposit companies licensed under the Banks and Deposit Companies Act 1999

Deadlines

• end of March, June, September and December each year: Liquidity Return must be completed as at these quarterly reporting dates