Risk liquidity requirements diverge across borders
Cross-border financial institutions face a struggle to meet liquidity risk requirements due to the lack of consensus between countries
There is a consensus that the main tools of liquidity risk should include stress testing and dynamic scenarios, but that is where the consensus ends, it said in a statement on Tuesday.
"Between regulatory jurisdictions there is a lack of consensus on how these risk measures should be interpreted in terms of regulatory requirements, specifically around the amount of liquidity funding institutions are required to hold," it says.
"Institutions operating across regulatory jurisdictions will continue to face different interpretations of funding liquidity risk requirements from regulators."
The firm welcomes the UK Financial Services Authority's international efforts to promote standardised reporting and supervision of liquidity risk, but says this will be difficult to achieve.
"We have seen a high level of international convergence around regulatory capital requirements for Basel II. However, we do not see this same level of convergence happening for liquidity risk because regulators are interpreting the requirements for holding funding liquidity differently," it says.
"Large institutions, faced with satisfying different reporting and compliance requirements for each jurisdiction in which they operate will need robust liquidity risk systems with enterprise liquidity risk frameworks and solid data infrastructures, to comply across a number of geographies," says Mario Onorato, senior director of balance sheet risk management solutions at Algorithmics and honorary senior lecturer, Cass Business School in London.
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