Friday, July 6, 2012

Bank supervisors propose how to gauge intraday liquidity

    Banks must have enough liquid funds to make payments during extreme stress in financial markets and proposed indicators will allow supervisors to monitor banks' ability to live up to their obligations.
    The Basel III banking regulations, created in the aftermath of the 2008 financial crises, raised both the quality and quantity of banks’ capital. The reforms also included minimum standards for short-term liquidity but not intraday liquidity.
     Intraday liquidity is money that can be accessed real time, such as a bank’s reserves and collateral at a central bank and uncommitted credit lines.
    During the early phase of the financial crises in 2007, many banks ran into difficulties because they didn’t manage their liquidity properly, despite adequate capital, driving home the importance of liquidity to the proper functioning of financial markets and banks. A rapid switch in market conditions showed how quickly liquidity can evaporate.

    In consultation with the Committee on Payment and Settlement Systems (CPSS), the Basel Committee on Banking Supervisors has proposed a set of indicators to monitor banks’ intraday liquidity risk, including liquidity requirements, available intraday liquidity, the value of customer payments, critical obligations, credit lines and total payments.
    The proposed indicators, which are for monitoring purposes only and do not set new standards for intraday liquidity management, are specifically aimed at all internationally active banks but they can also be used to monitor all banks that indirectly access payment and settlement systems, the plumbing of financial markets.
    Banks are being asked to submit their comments to the proposed indicators by September, 2012.

    Click to read "Monitoring indicators for intraday liquidity management - consultative document"


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