Banks must have enough
liquid funds to make payments during extreme stress in financial markets and proposed indicators will allow supervisors to monitor banks' ability to
live up to their obligations.
The Basel III banking
regulations, created in the aftermath of the 2008 financial crises, raised both
the quality and quantity of banks’ capital. The reforms also included minimum
standards for short-term liquidity but not intraday liquidity.
Intraday liquidity is
money that can be accessed real time, such as a bank’s reserves and collateral
at a central bank and uncommitted credit lines.
During the early phase of
the financial crises in 2007, many banks ran into difficulties because they
didn’t manage their liquidity properly, despite adequate capital, driving home
the importance of liquidity to the proper functioning of financial markets and
banks. A rapid switch in market conditions showed how quickly liquidity can
evaporate.
In consultation with the
Committee on Payment and Settlement Systems (CPSS), the Basel Committee on
Banking Supervisors has proposed a set of indicators to monitor banks’ intraday
liquidity risk, including liquidity requirements, available intraday liquidity,
the value of customer payments, critical obligations, credit lines and total
payments.
The proposed indicators, which are for monitoring
purposes only and do not set new standards for intraday liquidity management, are
specifically aimed at all internationally active banks but they can also be
used to monitor all banks that indirectly access payment and settlement
systems, the plumbing of financial markets.
Banks are being asked to submit
their comments to the proposed indicators by September, 2012.
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