LIECHTENSTEIN Law and Practice Contributed by: Bernhard Rankl, Moritz Blasy and Nicolai Binkert, Schurti Partners Attorneys at Law Ltd
Capital buffers In addition to the minimum capital requirements, banks in Liechtenstein must maintain various capital buffers: • Capital conservation buffer: In order to ensure that Liechtenstein banks do not breach the minimum capital requirements during periods of economic stress, an additional 2.5% of the total risk exposure is required as CET1 capital to absorb potential losses during such periods. • Countercyclical capital buffer: This buffer, ranging between 0% and 2.5% of the total risk exposure, aims to protect the resilience of the Liechtenstein banking system in times of excessive credit growth so that additional capital is built up when cyclical systemic risks are increasing. • Systemic risk buffer: The systemic risk buffer is designed to cover risks not falling within the scope of the aforementioned buffers, addressing potential serious adverse effects on the financial system and the real economy. Liquidity Requirements Liquidity coverage ratio (LCR) The LCR requires banks to hold a sufficient buff - er of high-quality liquid assets (HQLA) to cover net cash outflows over a 30-day stress period. The minimum LCR is 100%, meaning that the value of the bank’s HQLA must be at least equal to or greater than its estimated net cash outflows over this period. High-quality liquid assets are assets that can be easily converted into cash with little or no loss in value during a crisis – eg, central bank reserves, government bonds and certain corporate bonds. The LCR ensures that banks are resilient to short-term liquidity shocks.
Supervisory and Regulatory Oversight The FMA supervises the EAS and ensures that it complies with national and EEA-wide rules, and also co-operates with other EEA supervisory authorities to ensure cross-border co-ordination, particularly in view of the presence of foreign banks in Liechtenstein. This co-operation is important in the context of the home-host prin - ciple, under which the home supervisor has pri - mary responsibility, but the host country (Liech - tenstein) also supervises institutions operating within its borders. 7. Prudential Regime 7.1 Capital, Liquidity and Related Risk Control Requirements As a member of the European Economic Area (EEA), the Basel III framework has been imple - mented in Liechtenstein through the Regula - tion (EU) No 575/2013 (Capital Requirements Regulation; CRR) and Directive 2013/36/EU (Capital Requirements Directive; CRD IV) so that Liechtenstein banks are subject to strict capital, liquidity, and risk control requirements. These regulations are incorporated into Liechtenstein’s financial regulatory framework under the Bank - ing Act ( Bankengesetz ) and Banking Ordinance ( Bankenverordnung ), and are enforced by the FMA. Capital Requirements Minimum capital requirements In relation to minimum capital requirements, Liechtenstein law fully adheres to Basel III – ie, a Common Equity Tier 1 (CET1) capital ratio of 4.5%, a Tier 1 capital ratio of 6% and a total capital ratio of 8%, in each case expressed as a percentage of the total risk exposure amount.
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