PRA Finalizes Approach to Supervising Liquidity and Funding Risks
PRA published the policy statement PS4/20 that contains the updated supervisory statement (SS24/15) on its approach to supervising liquidity and funding risks (Appendix 1). PS4/20 provides feedback to responses to the consultation paper CP27/19, which contained proposals to update the SS24/15. The policy statement is relevant to PRA-authorized UK banks, building societies, and PRA-designated UK investment firms. The PS4/20 comes into effect on its date of publication.
In October 2019, BoE published the Market Operations Guide of BoE, outlining the framework for operations in sterling money markets. To reflect the Market Operations Guide and reiterate the relevant expectations set out in SS9/17 on recovery planning, PRA consulted on changes to SS24/15. The consultation closed on November 17, 2019. PRA received three responses to the CP27/19. Respondents generally welcomed the PRA proposals, while requesting some clarifications and suggesting limited changes to the proposals. The details of these responses, along the feedback and final decisions of PRA, have been set out in Chapter 2 of the policy statement.
In CP27/19, PRA had proposed that:
- There should be no presumptive order in which firms should use the BoE liquidity facilities, including the Discount Window Facility (DWF), or draw down their own liquid asset buffers to meet a liquidity need. Firms would be expected to use their own judgement in applying for and using the liquidity facilities of BoE.
- The PRA expectations from firms that have been set out in SS9/17 also apply with regard to the use of the central bank facilities as outlined in SS24/15. The proposals reiterated that recovery options should be credible, including where these involve the use of central bank facilities.
The policy set out in PS4/20 has been designed in the context of the withdrawal of UK from EU and entry into the transition period, during which time the UK remains subject to European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the EU take effect. PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018.
Related Links
Effective Date: March 02, 2020
Keywords: Europe, UK, Banking, Securities, Liquidity Risk, Market Operations Guide, Recovery Planning, CP27/19, SS24/15, PS4/20, BoE, PRA
Featured Experts
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Related Articles
EC Rule on Contractual Recognition of Write Down and Conversion Powers
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
APRA Issues Further Guidance on Application of Securitization Standard
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
SRB Provides Update on Approach to Prior Permissions Regime
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
EBA Finalizes Guidance to Assess Breaches of Large Exposure Limits
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
PRA Finalizes Changes to Consolidated Prudential Rules Under CRD5/CRR2
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
EBA Revises Guidelines on Stress Tests of Deposit Guarantee Schemes
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
Nordea Bank and EIB Sign Agreement to Fund Green Projects in Nordics
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
HKMA Endorses Industry Guidance to Support LIBOR Transition
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
OCC Issues Booklet on Supervision of Problem Banks
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.
