Regulation > CP 09/13 Strengthening liquidity standards 2: Liquidity reporting April 2009

Published: 28th April 2009 by William Webster

This CP is mainly concerned with questions about what firms should report and the frequency and scope of reporting. Comments are due by 15^th July 2009.

The rules and guidance on liquidity risk including the transitional arrangements are to be effective in Q4 2009. New reporting arrangements are to go live in Q1 2010.

The Individual Liquidity Guidance (ILG) will lead to a strengthening of firms’ liquidity over a period of several years.

The reporting is designed to inform the FSA about firms’ cashflow survival periods, eligible cashflow survival periods, cumulative gap positions and liquidity risk drivers. The FSA proposes to aggregate data in order to obtain a picture of market liquidity.

Some Individual Liquidity Adequacy Standards (ILAS) will fall into a standardised buffer regime. These firms will be simpler building societies and mortgage banks. The criteria are as follows:

The firm has no foreign exchange exposures in assets or liabilities;
Wholesale funding is no more than 30% of total funding;
The majority of assets are mortgages secured on residential property.

There is discussion about the frequency and detail of reporting. The FSA comments that “....to satisfy that firms are indeed capable of reporting the key data items daily, we will periodically check their capability via “on request” daily reporting over a set time period (e.g. two weeks) as part of our normal supervisory relationship with those firms”.

This means that even where firms do not normally report on a daily basis in a crisis situation the FSA will expect daily reporting.

Cost benefit analysis includes an anticipated cost associated with liquidity reporting. Ongoing costs range from £18k pa (building societies) to £951k pa (banks). One off set up costs are much higher at £49k and £3.2m respectively.

Displaying 1 to 6 of 6 results in total.

Related Documents

Regulation > Consultation Paper 09/17: A Specialist Sourcebook for Building Societies June 2009

1st August 2009

The general thrust of the CP is that Societies must prove that they have both the management and the systems capable of effectively dealing with the risks they face. This is part of the enhanced supervisory approach now adopted by the FSA. It states that systems and controls must match the level of complexity in a firm's business model. The FSA will adopt a more interventionist approach in order to ensure this is the case. The proposal is that building societies and the regulator will determine whether the risk management policies adopted are appropriate. Where they are not the Society can either simplify its business or improve its risk management. The FSA also intends to limit societies diversifying their business without a full assessment of capital adequacy. The FSA has considered applying similar CP 17 guidance to the banking sector but has decided on account of the "lack of homogeneity" that this would not be practical and in their case a firm-by-firm approach is more appropriate. The CP addresses treasury and lending. It contains five approaches to treasury management, three areas of treasury guidance and three approaches to lending. Consultation closes on 5th September 2009 with implementation due in early 2010 when a new Building Societies Sourcebook (BSOCS) will replace IPRU-BSOC.

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

31st January 2009

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".

Regulation > Consultation Paper 08/24 Stress and scenario testing December 2008

12th April 2009

The FSA wants to see more stress and scenario testing in firms. Senior management should be involved. Previous assumptions have been too relaxed. Stress testing should be in detail with the mitigating actions rehearsed. Reverse stress testing is introduced as a method of identifying critical events. The FSA is not going to tell you how to do this, it's up to you. However firms can expect greater challenge on the assumptions made.

Discussion Paper 10/4

3rd September 2010

This DP raises questions about the capital charge for trading books. Look more closely and you will find that the regulation of investment banking by the FSA is ineffective. Furthermore there is no reason to think that in the future it will improve. Investment banks will continue to run risks that periodically threaten their solvency. Their current interconnection with the retail deposit business means government support is guaranteed. A pragmatic solution would be to disentangle investment banking from the retail business. This free market approach is much favoured by investment bankers for other industries. Good business flourishes and bad ones die without placing a burden on the taxpayer. Now let's see why regulation won't protect us.

Governance > Walker review consultation

1st July 2009

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.

Liquidity Swaps

4th August 2011

Put a bank that has difficulty in raising liquidity in a room with an insurance company that's looking for yield and what do you get?