IV.4 Liquidity Risk - Asociación de Supervisores Bancarios de las Américas

FAQs on NSFR

(Anonymous) — Mon, 02 Jan 2017 18:51:13 +0000

The Basel Committee on Banking Supervision has received a number of interpretation questions related to some terms of previous documentation related to the Net Stable Funding Ratio (NSFR). To help ensure consistent global implementation of its standards, the Committee has agreed to periodically review frequently asked questions and publish their answers, along with any technical elaboration of the standards and interpretative guidance that may be necessary. The questions and answers for the NSFR are grouped into this document in the following fields: 1. Definitions; 2. Repos and secured lending; 3. Derivatives; 4. Maturity, and; 5. Others.

Basel III Monitoring Report

(Anonymous) — Mon, 02 Jan 2017 18:25:17 +0000

To assess the impact of the Basel III framework on banks, the Basel Committee on Banking Supervision monitors the effects and dynamics of the reforms taken. For this purpose, a semiannual monitoring framework has been set up on the risk-based capital ratio, the leverage ratio and the liquidity metrics, using data collected by national supervisors on a representative sample of institutions in different jurisdictions. This report is the tenth publication of results from the Basel III monitoring exercise and summarizes the aggregate results using data as of 31 December 2015. The Committee believes that the information contained in this report will provide its users with a useful benchmark for analysis.

Complete Set of Agreed Change to the LCR Formulation

(Anonymous) — Thu, 29 Oct 2015 04:20:56 +0000

Expand the definition of HQLA by including Level 2B assets, subject to higher haircuts and a limit
- Corporate debt securities rated A+ to BBB– with a 50% haircut
- Certain unencumbered equities subject to a 50% haircut
- Certain residential mortgage-backed securities rated AA or higher with a 25% haircut
Aggregate of Level 2B assets, after haircuts, subject to a limit of 15% of total HQLA

Summary Description of the LCR

(Anonymous) — Thu, 29 Oct 2015 04:19:28 +0000

To promote short-term resilience of a bank’s liquidity risk profile, the Basel Committee developed the Liquidity Coverage Ratio (LCR). This standard aims to ensure that a bank has an adequate stock of unencumbered high quality liquid assets (HQLA) which consists of cash or assets that can be converted into cash at little or no loss of value in private markets to meet its liquidity needs for a 30 calendar day liquidity stress scenario.

Net Stable Funding Ratio Disclosure Standards

(Anonymous) — Sun, 31 May 2015 22:17:50 +0000

The fundamental role of banks in financial intermediation makes them inherently vulnerable to liquidity risk, of both an institution-specific and market nature. Financial market developments have increased the complexity of liquidity risk and its management. During the early “liquidity phase” of the financial crisis that began in 2007, many banks – despite meeting the capital requirements then in effect – experienced difficulties because they did not prudently manage their liquidity. The difficulties experienced by some banks arose from failures to observe the basic principles of liquidity risk measurement and management.

Revised Pillar 3 Disclosure Requirements

(Anonymous) — Wed, 31 Dec 2014 06:16:19 +0000

Market discipline has long been recognised as a key objective of the Basel Committee on Banking Supervision (hereafter the “Committee” or “BCBS”). The provision of meaningful information about common key risk metrics to market participants is a fundamental tenet of a sound banking system. It reduces information asymmetry and helps promote comparability of banks’ risk profiles within and across jurisdictions. Pillar 3 of the Basel framework aims to promote market discipline through regulatory disclosure requirements. These requirements enable market participants to access key information relating to a bank’s regulatory capital and risk exposures in order to increase transparency and confidence about a bank’s exposure to risk and the overall adequacy of its regulatory capital.

Basel III The Net Stable Funding Ratio

(Anonymous) — Tue, 30 Sep 2014 22:14:27 +0000

This document presents the net stable funding ratio (NSFR), one of the Basel Committee’s key reforms to promote a more resilient banking sector. The NSFR will require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the likelihood that disruptions to a bank’s regular sources of funding will erode its liquidity position in a way that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability. This document sets out the NSFR standard and timeline for its implementation.

Guidance for Supervisors on Market-Based Indicators of Liquidity

(Anonymous) — Tue, 31 Dec 2013 13:05:51 +0000

This document is intended to assist supervisors when they evaluate the liquidity profile of assets held by banks. While each jurisdiction will make its own determination as to HQLA qualifications and their application to supervised institutions, some commonality in the tools and data used to make such determinations will help ensure a level of consistency across jurisdictions. Supervisors are expected to work within the existing framework of “levels” established by the LCR standard, using the associated haircuts and diversification requirements associated with each level. As described in the LCR standard, national authorities can choose whether to include an additional class of Level 2B assets. This gives scope for the potential inclusion in HQLA of a wide range of assets with very different liquidity profiles. This document provides suggestions that may assist supervisors when classifying such assets.

Liquidity Coverage Ratio Disclosure Standards

(Anonymous) — Tue, 31 Dec 2013 13:02:35 +0000

The fundamental role of banks in financial intermediation makes them inherently vulnerable to liquidity risk, of both an institution-specific and a market nature. Financial market developments have increased the complexity of liquidity risk and its management. During the early “liquidity phase” of the financial crisis that began in 2007, many banks – despite meeting existing capital requirements then in effect – experienced difficulties because they did not manage their liquidity in a prudent manner. The difficulties experienced by some banks, which, in some cases, created significant contagion effects to the broader financial system, were due to lapses in basic principles of liquidity risk measurement and management.

Basel III Leverage Ratio Framework and Disclosure Requirements

(Anonymous) — Tue, 31 Dec 2013 12:40:46 +0000

An underlying cause of the global financial crisis was the build-up of excessive on- and off-balance sheet leverage in the banking system. In many cases, banks built up excessive leverage while apparently maintaining strong risk-based capital ratios. At the height of the crisis, financial markets forced the banking sector to reduce its leverage in a manner that amplified downward pressures on asset prices. This deleveraging process exacerbated the feedback loop between losses, falling bank capital and shrinking credit availability.

Monitoring Tools for Intraday Liquidity Management

(Anonymous) — Sun, 31 Mar 2013 15:36:14 +0000

Management of intraday liquidity risk forms a key element of a bank’s overall liquidity risk management framework. In September 2008, the Basel Committee on Banking Supervision (BCBS)1 published its Principles for Sound Liquidity Risk Management and Supervision (the Sound Principles), which provide guidance for banks on their management of liquidity risk and collateral.

Revisions to Basel III - The Liquidity Coverage Ratio and Liquidity Risk

(Anonymous) — Mon, 31 Dec 2012 20:10:15 +0000

In addition, supervisors may choose to include within Level 2B assets the undrawn value of any contractual committed liquidity facility (CLF) provided by a central bank, where this has not already been included in HQLA in accordance with paragraph 58 below.

Basel III The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools

(Anonymous) — Mon, 31 Dec 2012 19:00:46 +0000

This document presents one of the Basel Committee’s key reforms to develop a more resilient banking sector: the Liquidity Coverage Ratio (LCR). The objective of the LCR is to promote the short-term resilience of the liquidity risk profile of banks. It does this by ensuring that banks have an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted easily and immediately in private markets into cash to meet their liquidity needs for a 30 calendar day liquidity stress scenario. The LCR will improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. This document sets out the LCR standard and timelines for its implementation.

Basel III A Global Regulatory Framework for More Resilient Banks and Banking Systems

(Anonymous) — Tue, 30 Nov 2010 18:58:31 +0000

This document, together with the document Basel III: International framework for liquidity risk measurement, standards and monitoring, presents the Basel Committee’s reforms to strengthen global capital and liquidity rules with the goal of promoting a more resilient banking sector. The objective of the reforms is to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. This document sets out the rules text and timelines to implement the Basel III framework.

Basel III Intl Framework for Liquidity Risk Measurement Standards & Monitoring

(Anonymous) — Tue, 30 Nov 2010 11:52:30 +0000

This document presents the liquidity portion of the Basel Committee’s reforms to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The objective of the reforms is to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. This document sets out the rules text and timelines to implement the liquidity portion of the Basel III framework.

Principles for Sound Liquidity Risk Management & Supervision

(Anonymous) — Sun, 31 Aug 2008 08:27:45 +0000

Liquidity is the ability of a bank to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. The fundamental role of banks in the maturity transformation of short-term deposits into long-term loans makes banks inherently vulnerable to liquidity risk, both of an institution-specific nature and that which affects markets as a whole. Virtually every financial transaction or commitment has implications for a bank’s liquidity. Effective liquidity risk management helps ensure a bank's ability to meet cash flow obligations, which are uncertain as they are affected by external events and other agents' behaviour. Liquidity risk management is of paramount importance because a liquidity shortfall at a single institution can have system-wide repercussions. Financial market developments in the past decade have increased the complexity of liquidity risk and its management.