Clayton Utz Insights

22 December 2011

RBA sets annual fee for committed liquidity facility

By Louise McCoach and Alex Chernishev.

Key Points:

In return for providing commitments under the CLF, the RBA will charge an annual fee of 0.15% per annum, based on the size of the commitment.

In December last year the Reserve Bank of Australia announced that it would make a committed liquidity facility (CLF) available to authorised deposit-taking institutions so that they could meet any shortfalls in their ability to satisfy the Liquidity Coverage Ratio (LCR) under Basel III.

On Wednesday 16 November 2011, the RBA provided additional details on the CLF. The RBA announced that in return for providing commitments under the CLF, it will charge an annual fee of 0.15% per annum, based on the size of the commitment.

Accessing the CLF and eligible securities

In its announcement, APRA emphasised the importance of the CFL in light of the fact that it will only allow cash and government securities to count as liquid assets for the purposes of the LCR. The CLF will play a key role in facilitating coverage by ADIs of any shortfalls between their liquid assets and the LCR requirements.

Securities that ADIs can use as collateral under the CLF will include all securities eligible for repoing under the RBA's normal market operations. The RBA has also stated that self-securitised RMBS will be eligible collateral under the CLF. Should an ADI lack a sufficient quantity of residential mortgages, the RBA has indicated that it will consider other "self-securitised" assets on a case-by-case basis.

Before an ADI can rely on the CLF it must first receive approval from APRA, which may require as much as 12 months' advance notice.

The annual fee and initial margins

The 0.15% per annum access fee for the CLF will apply to both drawn and undrawn commitments and must be paid monthly in advance. It may also be varied by the RBA at its sole discretion, provided that the RBA gives three months' notice of any change.

The RBA has also stated that the initial margins applied to eligible collateral will be the same as those used in its normal market operations. Consistent with current practice, each day the RBA will revalue all securities held under the CLF at prevailing market prices. Furthermore, in line with its overnight repo facility arrangements, the interest rate for the CLF will be set at 0.25% above the RBA's target cash rate.

 

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Email: Andrew Jinks, Partner
Tel: +61 2 9353 5818
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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
Louise McCoach
Louise McCoach