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UniCredit Group's Response to CEBS Consultation on Liquidity Risk Management

Core Content

UniCredit Group, through its holding company UniCredit S.p.A., submitted a detailed response to the Committee of European Banking Supervisors (CEBS) consultation on liquidity risk management and supervision. The consultation, which ran until 1 August 2008, aimed to improve the regulatory and supervisory framework for liquidity risk, in line with the Basel Committee on Banking Supervision (BCBS) recommendations. The Group emphasized its alignment with the CEBS proposals, while also highlighting the need for further harmonization and cooperation among regulators and central banks.

Main Objectives

The Group's response is based on three main objectives:

1. Better regulation for liquidity risk to ensure sustainable business practices.
2. Efficient and effective supervisory framework to support sound liquidity management.
3. Appropriate market discipline to enhance transparency and stability in financial systems.

Key Points and Recommendations

Group-Wide Liquidity Risk Management

• The Group advocates for a group-wide and qualitative approach to liquidity risk management, which is more efficient than a fragmented, country-specific approach.
• A consolidating supervisor should lead the centralization and integration of group-wide supervision in the EU.
• The Group liquidity policy includes three levels of control:
  1. Short-term liquidity limits (up to one month) with warning levels at two and three months.
  2. Long-term asset-liability maturity ratios to ensure alignment.
  3. Days of survival as an operational target during market distress.

Legal and Regulatory Obstacles

• National legal restrictions may hinder cross-border liquidity and asset transfers within the Group.
• The lack of a clear definition of a banking group in EU legislation is a concern.
• Collateral eligibility and central bank procedures are not harmonized across the EU, affecting liquidity management efficiency.
• A common portal for comparing country-specific features is suggested to enhance transparency.
• Collaboration between central banks and depositories is needed to improve the collateral allocation process.

Collateral Management

• Collateral is a critical component of liquidity risk management, especially in times of market stress.
• The Group recommends:
  • Investigating obstacles to using a centralized collateral pool.
  • Harmonizing collateral procedures across central banks.
  • Implementing collateral reuse to optimize liquidity access.
  • Encouraging central banks to accept non-euro denominated assets in emergency credit operations.

Analysis and Control

• The Group conducts daily liquidity cash flow analysis and has a valuation process for contingent liquidity demand from off-balance sheet positions.
• It emphasizes the importance of diversifying funding sources and managing liquidity in different currencies to avoid local liquidity shocks.
• The parent company acts as a lender of last resort under Italian Banking Law, supporting subsidiaries during liquidity crises.
• There is a need for fine-tuning stress test methodologies, particularly in handling committed lines, optional features, and collateral management.

Disclosure and Transparency

• The Group supports Recommendation 18, which calls for timely and adequate disclosure of liquidity risk management practices.
• It highlights the importance of market liquidity risk disclosure in preventing financial instability.
• The Group believes that micro and macro-prudential data should be collected and disclosed to improve market discipline and risk pricing.
• Structured dialogue between financial institutions, central banks, and supervisors is proposed to identify and disclose relevant information.

Supervisory and Central Banking Cooperation

• Supervisors should focus on the adequacy of liquidity risk insurance and the marketability of assets.
• There is a misalignment between the eligibility criteria of assets for prudential purposes and for central bank credit operations.
• Currency swap facilities are essential for managing liquidity disruptions and supporting systemically relevant branches.
• Central banks should consider new techniques to facilitate intraday and overnight credit.

Conclusion

UniCredit Group generally supports the CEBS recommendations and believes that a harmonized and integrated approach to liquidity risk management is crucial for financial stability. It emphasizes the need for cooperation between supervisors and central banks, legal harmonization, and improved data sharing to enhance market discipline and liquidity resilience. The Group also calls for structured dialogue to ensure that both individual institutions and supervisory authorities can effectively manage and disclose liquidity risk information.