
Basel Committee drafts liquidity risk principles
“The Basel Committee’s goal in developing these global standards is to significantly raise the bar for the management and supervision of liquidity risk at banks,” said Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank. “The committee fully expects banks and supervisors to implement the enhanced principles promptly and thoroughly. We will vigorously assess the degree to which the principles are implemented.”
The principles support one of the key recommendations for strengthening prudential oversight set out in the Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience, presented to G-7 finance ministers and central bank governors in April.
The draft principles represent a substantial revision of the committee’s liquidity guidance published in 2000, reflecting the need to address critical areas of weakness that have emerged in the financial markets since the second half of 2007. The work was drawn from recent and ongoing work on liquidity risk by the public and private sectors, and is intended to strengthen banks’ liquidity risk management and improve global supervisory practices.
“The principles are based on the fundamental premise that a bank’s liquidity risk framework should ensure it maintains sufficient liquidity to withstand a range of stress events, including those that affect secured and unsecured funding” said Nigel Jenkinson, co-chairman of the Basel Committee’s working group on liquidity and executive director of the Bank of England.
The principles also strengthen expectations about the role of supervisors. Arthur Angulo, the other co-chairman of the working group and senior vice-president of the Federal Reserve Bank of New York, added: “Supervisors, for their part, should assess the adequacy of both a bank’s liquidity risk management framework and its liquidity position. In order to protect depositors and to limit potential damage to the financial system, supervisors should take prompt action if a bank is deficient in either area.”
The principles underscore the importance of establishing a robust liquidity risk management framework that is well integrated into the bank-wide risk management process. The primary objective of this guidance is to raise banks’ resilience to liquidity stress.
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 print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Grim repo warning spotlights BNP Paribas booking model
Federal regulators may be targeting French bank’s Paris-based book of US Treasuries
We’re all outliers now: Europe’s unflattering IRRBB test
Banks, fearing overreaction from supervisors, urge European Commission to reject NII-based assessment
SEC targets ‘dark magic’ in fixed-income pricing with Bloomberg fine
US regulator is going after pricing vendors that deviate from their published methodologies
Alameda’s mystery bank stake reignites Fed deposit debate
Crypto challenger Custodia accuses regulator of unlevel playing field over master accounts
More EU banks will fail new IRRBB test as rates push upwards
Half of all EU banks could cross outlier threshold for new test of net interest income
Finra head recognises ‘challenges’ for bond transparency drive
Cook says regulators thinking about industry’s operational and liquidity concerns
Why central banks shouldn’t ignore stablecoins
Rapid growth of stablecoins could impair monetary policy transmission
Hedge funds doubt tall tales around UK short-selling review
FCA has never used powers to ban short-selling, but reporting tweaks would be welcome