![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Global bank supervisors endorse sound practice standards for liquidity risk
The Basel Committee’s Principles for Sound Liquidity Risk Management and Supervision was endorsed by central bankers at an international conference
BRUSSELS – Bank supervisors from central banks and supervisory agencies have endorsed the Basel Committee's Principles for Sound Liquidity Risk Management and Supervision. Supervisors were meeting at the International Conference of Banking Supervisors hosted by the Belgian Banking, Finance and Insurance Commission and the National Bank of Belgium on September 24–25, 2008 in Brussels.
The principles underscore the importance of establishing a robust liquidity risk management framework that is well integrated into the bank-wide risk management process. Key elements of a bank's governance of its liquidity risk management are also emphasised. The document also sets out the principles to strengthen the measurement and management of their liquidity risk. Among other things, a bank should conduct regular stress tests for a variety of short-term and protracted institution-specific and market-wide stress scenarios and use the outcomes to develop robust and operational contingency funding plans; ensure the alignment of risk-taking incentives of individual business lines with the liquidity risk exposures the activities create; actively manage its intra-day liquidity positions and risks to meet payment and settlement obligations; and maintain a cushion of unencumbered, high-quality liquid assets as insurance against a range of stress scenarios.
Nout Wellink, chairman of the Basel Committee on Banking Supervision and president of the Netherlands Bank, stated that: “The new liquidity principles should help promote better risk management in this key area. This will only be achieved, however, if there is robust and timely implementation by banks and supervisors. The Committee will co-ordinate rigorous follow-up by supervisors to ensure banks adhere to these fundamental principles."
The principles also discuss the key role of regular public disclosure that enables market participants to make an informed judgement about the soundness of a bank's liquidity risk management framework and liquidity position. The role of supervisors is also highlighted, including the responsibility to intervene to require effective and timely remedial action by a bank to address liquidity risk management deficiencies. The principles also stress the need for regular communication with other supervisors and public authorities, both within and across national borders.
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.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
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. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Cool heads must guide financial regulation of climate risk
Supervisors can’t simply rely on ‘magical thinking’ of market discipline, says Sergio Scandizzo
Markets worry EU’s reporting simplification will add to burden
Rather than reducing firms’ obligations, market participants fear it could end up increasing requirements
EU banks show basic instinct for credit valuation adjustments
Simpler approach to CVA appeals even to some already using more complex models for counterparty risk
Bank of England wants dynamic Emir for UK clearing houses
Review won’t just photocopy EU legislation, as BoE seeks to make rules simpler and adaptable
Big banks could be sidelined from future rescue deals – FSB
Exacerbation of too-big-to-fail means G-Sibs could already be too large to take extra assets
More guidance, less enforcement: the SEC under Paul Atkins
Current and former insiders expect clearer crypto rules and an end to regulatory violation sweeps
During Trump turbulence, value-at-risk may go pop
Trading risk models have been trained in quiet markets, and volatility is now looming
Bank of England mustering unit to model system-wide stresses
Permanent team at UK supervisor will work on buy- and sell-side interactions