Cebs consults on liquidity buffers

Daily news headlines

The European banking watchdog has published a consultation paper regarding the introduction of liquidity buffers

LONDON - The Committee of European Banking Supervisors (Cebs) has published its draft guidelines on liquidity buffers, aimed at improving the resilience of banks' risk management to future liquidity shocks.

The consultation paper (CP28) addresses the appropriate size and composition of liquidity buffers, on the principle that bespoke buffers should be in place to enable credit institutions to withstand a liquidity drought for at least one month without switching business models.

"As liquidity risk is largely institution-specific, Cebs encourages credit institutions to engineer their own individual counterbalancing framework, starting with robust bespoke liquidity buffers available outright over the defined 'survival period'," said Kerstin af Jochnick, chair of Cebs.

CP28 stresses that, when internal risk management functions build their firms' buffers, they should consider three types of stress test scenarios: idiosyncratic, market-specific and a combination of the two approaches.

It also sets a one-month time horizon as appropriate, as well as a shorter test of a single week, labelled an "acute phase of stress", requiring a greater degree of confidence on the capacity for the eligible assets to generate liquidity.

Cebs says the buffer's core should be based on cash and assets that are highly liquid in private markets and central bank-eligible, although for the longer stress period some flexibility is considered appropriate.

In a nod to pro-cyclicality lessons from the current crisis, Cebs also cautions it wants to avoid defining standardised parameters that might encourage a number of banks to trigger their buffers in similar market conditions, in turn posing further systemic risk.

Cebs will hold a public hearing on its plans for liquidity buffers on September 22, and public consultation will run until October 31.

Click here to read the CP28.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here