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EBF Comments on CEBS's Proposed Guidelines on Liquidity Cost Benefit Allocation (CP36)

Core Content

The European Banking Federation (EBF) has provided feedback on the CEBS Consultation Paper (CP36) proposing guidelines on liquidity cost benefit allocation. The EBF supports the general rationale of the paper, which emphasizes the importance of creating awareness across business lines about the internal cost of liquidity. It also endorses the idea that banks should be able to allocate liquidity costs to each transaction or product, with some flexibility for pool pricing in specific cases.

Main Points of Support

• Rationale Alignment: The EBF agrees with the paper's fundamental objective of ensuring that banks understand and account for the internal cost of liquidity in their operations.
• Principles-Based Approach: The EBF appreciates the principles-based methodology proposed in the paper, as it allows for flexibility and avoids imposing a one-size-fits-all solution.
• Proportionality Emphasis: The focus on proportionality is welcomed, as it ensures that the complexity of liquidity cost allocation is aligned with the size and nature of the bank.
• Granularity of Allocation Mechanism: The EBF supports the principle that liquidity cost allocation should be granular, aiming to assign an internal price to each transaction or product.
• Flexibility in Pool Pricing: The clarification that pool pricing may be acceptable in certain instances, such as for deposits or trading book transactions, is considered useful.

Key Information and Recommendations

• No Prescriptive Methodology: The EBF believes that a detailed and prescriptive approach is not suitable, as each bank has different risk appetites, business models, and strategies.
• Supervisory Dialogue: The EBF supports the requirement for banks to engage in a dialogue with their supervisors regarding the soundness and completeness of their internal liquidity cost measurement methodologies.
• Commercial Strategy Considerations: The EBF highlights that banks may have valid commercial reasons to deviate from the principle of using liquidity costs in external pricing, such as maintaining comprehensive client relationships or competing in the market.
• Harmonisation of Supervisory Practices: The EBF agrees that harmonising supervisory practices across EU Member States is necessary. It suggests that a study on the implementation of the guidelines one year after their introduction could help facilitate this harmonisation.

Conclusion

Overall, the EBF is supportive of the CEBS Consultation Paper's approach to liquidity cost benefit allocation, particularly its emphasis on awareness, flexibility, and proportionality. While some wording in the paper is considered ambiguous, the EBF believes that the proposed guidelines provide a sound and adaptable framework for banks to manage liquidity costs internally. The EBF also looks forward to the harmonisation of supervisory practices and the potential for further refinement through post-implementation studies.