The Financial Services Authority (FSA) has published feedback on its Discussion Paper (DP) on liquidity requirements for banks and building societies.
The DP looked at ways that liquidity policy should develop and focussed on lessons learned following recent market conditions. Respondents broadly agreed with the policy objectives set out in the DP and with the FSAs current high level standards and principles-based approach.
The key points that emerged from the responses were:
There was strong agreement on the need to continue coordinating the FSAs work on liquidity both at a national level and on an international level.
Most respondents are reviewing their stress testing scenarios and contingency funding plans in line with lessons learned over the past year.
The majority of respondents stressed the importance of the close relationship between the central banks role, actions and provisions, and firms internal liquidity risk management processes, as well as any measures developed by the FSA under a new regulatory regime.
Most respondents agreed that quantitative requirements were a necessary component of any liquidity regime, particularly for the short term, and agreed that one single quantitative regime should replace the existing three. There was some scepticism, however, about the usefulness of quantitative requirements to safeguard against long-term chronic liquidity stresses and about the possibility of standardisation across institutions.
“We welcome the wide range of feedback we have received to DP07/7. The responses contain useful comments and suggestions, which we will consider in detail as we develop our work on a new liquidity regime. We look forward to continuing our constructive engagement with the industry and other interested stakeholders and remain committed to full transparency throughout the ensuing consultation process,” says Paul Sharma, director of Wholesale and Prudential Policy, FSA.