CEBS Guidelines on Liquidity Buffers
09 December 2009
The Committee of European Banking Supervisors (CEBS) today publishes its guidelines on liquidity buffers following a four-month public consultation period and a public hearing. These guidelines, which build on CEBS's Recommendations on Liquidity Risk Management, elaborate upon the appropriate size and composition of liquidity buffers to enable banks to withstand a liquidity stress for a period of at least one month without changing their business models.
"These guidelines address the flaws in the liquidity risk management practices revealed during the crisis and are expected to represent a significant enhancement of institutions' liquidity positions" noted Mr. Giovanni Carosio, Chairman of CEBS. He added that "CEBS's work encourages a reinforcement of the management of liquidity risk by institutions in a context of structural changes in some national regulatory regimes and international cooperation towards a possible set of international standards".
CEBS sees liquidity buffers being built using cash and assets that ensure the generation of liquidity within a short period at a predictable value. Thus, for the very short term (at least one week), only assets that are both highly liquid in private markets and eligible at central bank standard facilities count towards the liquidity buffers. For the longer end of the buffer (at least one month), other highly liquid assets might be appropriate as well. Guidance on determining/assessing assets' liquidity is provided in Annex 2 of this paper.
In developing these guidelines, CEBS reviewed a wide range of liquidity buffer approaches and benefited from views gathered from a broad range of market participants. Input was provided in the industry's responses to the public consultation (CP28) published in June 2009 and in a public hearing organised in September 2009. CEBS has considered the feedback received and has revised its initial proposals in order to address the main issues raised by market participants.
During the consultation period CEBS has done a general assessment of the possible qualitative impact of these requirements on financial institutions.
Due to the possible evolution towards international liquidity standards in the coming years, CEBS is prepared to revisit its guidelines on liquidity risk management and liquidity buffers as far as necessary.