Assessment of capital endowment and liquidity resources
Competent authorities should assess:
whether the TCB branch meets the minimum capital endowment requirement as specified in Article 48e(1) of Directive 2013/36/EU;
whether the concentration of the capital endowment on a particular form of instrument or on instruments from a particular geographical location, or the currency inconsistency of the capital endowment instruments with the TCB’s liabilities, especially with deposits, would lead to heightened volatility of the value of the instruments and to the potential breach of the minimum requirement;
whether the capital endowment is held in an eligible escrow account in the Member State where the third-country branch has been authorised and the capital endowment instruments meet the criteria specified in Article 48e(2) of Directive 2013/36/EU and the conditions set in the EBA Guidelines on instruments available for third-country branches for unrestricted and immediate use to cover risks or losses(62).
Competent authorities should assess whether the institution holds sufficient liquid and unencumbered assets to mitigate its liquidity risks and in particular that the branch’s liquid assets are sufficient for cover liquidity outflows over a minimum of 30 days in line with Article 48f(1) of Directive 2013/36/EU. For Class 1 TCBs, the assessment should cover the branch’s compliance with the liquidity coverage requirement as described in the same Article.
In conducting the capital endowment and liquidity assessment, competent authorities should consider whether the TCB maintains documentation that is adequate for a prompt and accurate review of its compliance with the minimum capital endowment and liquidity requirement.
Competent authorities should assess:
the quality of the engagement between the TCB and head undertaking on capital and liquidity management decisions – including how the branch is covered in group capital and liquidity planning processes, monitoring and stress testing and the existence of appropriate escalation mechanisms for the branch to promptly notify the head undertaking of potential or actual capital or liquidity issues;
whether the cross-border intra-group funding arrangements are within the limits of the exception allowed in accordance with Article 48c(4) (d) of Directive 2013/36/EU and do not disguise cross-border business activities in breach of the territorial scope of the authorisation – for instance where the intragroup funding provided to a TCB established in another Member State in exchange for a (total or partial) share of the economic risks and returns of a specific asset.