Managing liquidity over the next 180 days is an integral part of cover register management and subject to ongoing strict monitoring. Here, the objective is to ensure that the maximum cumulative liquidity needs arising during the next 180 days are covered through resources available to the cover pool. This means that the total of surplus cover (in accordance with the PfandBG*) and securities registered in the cover pool and classified by the ECB as eligible securities for central bank borrowings match the calculated maximum cumulative liquidity needs over the next 180 days.
Regulatory requirements (NPV directive):
Management of the interest rate and cross currency risk is based on the NPV principle using relevant stress scenarios. To calculate stress scenarios in accordance with § 5.2 of the BaFin directive, Helaba uses its own internal risk model. Compared to the BaFin** method of static or dynamic shifts of the yield curve, use of this proprietary model enables a more precise measurement of the interest rate risk. Helaba ensures that the resulting NPV of the cover register after stress testing never falls below a surplus cover of 2%.
Risk management at Helaba
Helaba’s aim is to adequately control the market risks affecting public Pfandbrief instruments, in particular credit, foreign currency, interest rate and liquidity risks, by taking appropriate measures (e.g. through natural hedging or derivatives). Helaba has committed itself to provide sufficient net present value surplus cover at all times, even under stress testing scenarios, in order to safeguard the Pfandbrief creditor’s security. As a rule, it can be assumed that the cover provided by Helaba will exceed the regulatory requirements.
The voluntary commitment will be reviewed annually as to the appropriateness of its provisions. Any changes will be published in suitable manner and with a notice period of at least two months before such changes take effect.
In principle the legislator has defined the statutory and regulatory requirements so as to ensure the continued existence of the cover register, even in the case of insolvency. Issuers are therefore obliged to make sure that a cover register always has sufficient liquid funds, also to satisfy short-term liquidity requirements. This liquidity requirement will be ensured through the regulatory stipulated surplus cover of at least 2% and in addition, through the liquid securities as defined in the voluntary commitment.
The cover register and the resulting risk is a sub-portfolio of the entire market risk incurred by a credit institution issuing Pfandbriefe. The voluntary commitment requires that sub-portfolio risks are minimised and that the relevant surplus cover is provided for the portfolio irrespective of the institution’s overall position.
Helaba undertakes to regularly review and, where required, adjust its voluntary commitment to ensure that it is up-to-date and in conformity with the valid methods and instruments for Pfandbrief management.
Investors holding Pfandbrief instruments will be notified well in advance of any changes to this voluntary commitment.
*Pfandbriefgesetz: Pfandbrief Law
** Bundesanstalt für Finanzdienstleistungsaufsicht: German financial services authority