18 March 2009
CEBS is today publishing an interim report on liquidity buffers and "survival" periods in response to a request from the Economic and Financial Committee and as part of the follow-up to its 30 Recommendations on liquidity risk management.
This report presents the preliminary views on how CEBS could steer the approach the industry will use to calibrate the size, and determine the composition, of liquidity buffers over certain defined time horizons, while also considering further differentiation around currencies and legal entities. It builds on CEBS's previous work and on intensive dialogue with CEBS's Industry Expert Group on Liquidity.
CEBS's proposals are based on the understanding that a liquidity buffer is dependent on three dimensions: the severity and characteristics of the stress scenarios, the time horizon fixed as a survival period and the characteristics of the assets in the buffer. For conducting the stress tests a survival period of one month is tentatively suggested. On assets eligible for the buffer, CEBS emphasizes that they should ensure generation of liquidity immediately or within a very short time and should provide a reasonable predictability regarding the amount of liquidity that they can generate, via the use of haircuts if necessary.
Principles for the determination of eligible assets and for setting the adequate minimum size of the buffer, especially in relation to survival periods, will be prepared. Further work will also be conducted on the stress scenarios to be used by the banks. CEBS intends to publish a Consultation Paper on its refined proposals by mid-2009.
Substantial differences in approaches to liquidity buffers exist among EU supervisors and banking institutions. Therefore preference is expressed for a rather simple approach which should facilitate implementation and communication with stakeholders. This should not preclude institutions from complementing this approach as is appropriate to their complexity, business models and liquidity risk profiles.
Franca Rosa Congiu