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January 17, 2019

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose. The principles underscore the importance, for banks, of establishing a robust liquidity risk management framework.

As implementation of all its standards and guidelines is a high priority for the Committee, a review of these principles was initiated in 2017. The review also covered liquidity-risk-related developments in financial markets since 2008. Based on information provided by each Basel Committee-member jurisdiction, the review concluded that:

  • All Committee member jurisdictions have implemented the Sound Principles through regulation, published guidance, or supervisory practice.
  • The global liquidity standards introduced under Basel III—the Liquidity Coverage Ratio and Net Stable Funding Ratio—are important complements to the principles for liquidity risk management. As such, banks and supervisors should continue to heed the broader liquidity risk management considerations set out in the principles.
  • Significant developments in financial markets since the principles for liquidity risk management were published in 2008 are likely to have an important bearing on liquidity risk management considerations of a bank. These developments include the increasing digitization of finance and payment systems and the broader growth of financial technology; a greater use of central clearing of derivatives and margining; and the increasing risk and magnitude of cyber-attacks.

The Basel Committee advises banks and supervisors to remain vigilant in their liquidity risk management. In line with the principles for liquidity risk management, banks' risk management and supervisors' practices should be consistently and rigorously applied through the economic cycle, regardless of market liquidity conditions.

 

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Keywords: International, Banking, Basel III, Liquidity Risk, Principles for Liquidity Risk Management, BCBS

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