1. Credit institutions shall have policies and limits in place to ensure that the holdings of liquid assets comprising their liquidity buffer remain appropriately diversified at all times. For those purposes, credit institutions shall take into account the extent of diversification between the various categories of liquid assets and within the same category of liquid assets referred to in Chapter 2 of this Title and any other relevant diversification factors, such as types of issuers, counterparties or the geographical location of those issuers and counterparties.
Competent authorities may impose specific restrictions or requirements on a credit institution's holdings of liquid assets to ensure compliance with the requirement set out in this paragraph. Any such restriction or requirement, however, shall not apply to:
(a) the following categories of level 1 assets:
(i) banknotes and coins referred to in Article 10(1)(a);
(ii) the exposures to central banks referred to in points (b) and
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