Regulation > Consultation Paper 08/22 Strengthening liquidity standards December 2008

Published: 31st January 2009 by William Webster

This CP sets out the FSA's plans to reform the liquidity regime. It requires firms to undertake a much more rigorous analysis of their liquidity position. This includes the effect of stressed conditions on their business. The firm will submit what it considers to be an appropriate liquidity buffer to the regulator. The FSA will then decide whether it is sufficient. In determining the buffer the FSA will also assess the firm's systems and management. If these are considered weak the buffer will be increased accordingly. The liquidity buffer can only be held in liquid assets. The FSA's view is that this primarily means Gilts, sovereign debt or central bank deposits.

The FSA makes it clear, "The responsibility of adopting a sound approach to liquidity risk management is on firms and their senior management".

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A contractual cash flow report for a bank will show you that liabilities have shorter maturities than assets. That's because running liquidity risk generally makes money. But it has risks. Lack of confidence can lead to a real shortage of cash. That's why banks hold liquidity buffers. But measuring liquidity risk goes beyond what is contracted. It needs to assess the behaviour of markets and individuals. It's why stress testing is in vogue. Stress testing can't predict the future but it can give you an estimate for your liquidity buffer. It's likely to be a lot bigger than previously and it's going to cost your firm more, that's unless you can pass the cost on through transfer pricing.

Governance > Walker review consultation

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The Walker review A review of corporate governance in UK banks and other financial industry entities This is an independent review led by Sir David Walker into the corporate governance of banks. A consultation document was published on 16th July 2009. There are 39 recommendations. This is a summary.