EBA欧洲银行-CP19_Liquidity_77页_521kb

CEBS Technical Advice on Liquidity Risk Management (Second Part Summary)

Introduction

This document is the second part of CEBS's technical advice to the European Commission on liquidity risk management for credit institutions and investment firms. It aims to update regulatory regimes across the EEA and analyze factors affecting liquidity risk, including the interaction between funding and market liquidity risks, internal methodologies, and payment and settlement systems. The advice is based on a 2007 survey and discussions with industry experts and rating agencies during the 2007-2008 liquidity crisis. It emphasizes the need for a proportionate and converged approach to liquidity risk management across the EEA.

Core Content

The document outlines a comprehensive framework for understanding and managing liquidity risk, highlighting the following key areas:

• Liquidity and Liquidity Risk Definitions: Liquidity risk is defined as the risk of an institution being unable to meet its liabilities without incurring unacceptable losses. It is not limited to cash but includes a range of assets and liabilities, with assumptions about their liquidity-generating capacity.

• Liquidity Buffer: A liquidity buffer of unencumbered, highly liquid assets is crucial for meeting obligations during periods of stress. It should be actively managed and embedded in the overall liquidity strategy.

• Market Developments: The increasing reliance on market funding, use of complex financial instruments, and globalization of financial markets have created new liquidity challenges. The 'originate-to-distribute' model and the role of collateral in funding structures are particularly emphasized.

• Internal Governance and Risk Management: Robust internal governance is essential for liquidity risk management. The Board of Directors must define the liquidity risk strategy, while senior management must implement it. The organizational structure should ensure segregation of duties and proper coordination.

• Collateral Management: Institutions must have policies for identifying and estimating collateral needs, understand legal and operational constraints, and ensure a conservative definition of collateral.

• IT Systems: Adequate IT systems are required to support liquidity risk measurement and monitoring, and these should be regularly reviewed.

• Stress Testing and Contingency Planning: Institutions must conduct regular liquidity stress tests and have contingency funding plans that are tested and updated. Stress tests should consider both internal and external factors and be used to adjust internal policies.

• Supervisory Approach: Supervisors should apply a proportionate approach, considering each institution's liquidity risk profile and systemic risk. They should ensure that internal methodologies are adequately tested and that institutions have sufficient liquidity buffers.

• Transparency and Disclosure: Institutions must disclose timely and relevant information on their liquidity risk management and positions to stakeholders, including rating agencies and the market.

• Cross-Border Coordination: Supervisors of cross-border groups should coordinate closely to understand group-level liquidity risk profiles and ensure effective supervision.

Main Recommendations

For Institutions

• Recommendation 1: Define a liquidity risk strategy and set management policies aligned with the institution's risk profile, role in the financial system, and risk tolerance.
• Recommendation 2: Implement an internal liquidity cost/benefit allocation mechanism, supported by transfer pricing where appropriate.
• Recommendation 3: Ensure an appropriate organizational structure with clear segregation of duties and sufficient staff and resources.
• Recommendation 4: Be aware of strategic liquidity risk and maintain awareness of group liquidity positions and flows.
• Recommendation 5: Adopt IT systems that are commensurate with the complexity of activities and liquidity risk measurement techniques.
• Recommendation 6: Determine asset liquidity based on its liquidity-generating capacity, not just its accounting classification.
• Recommendation 7: Consider all legal and operational factors when using netting agreements.
• Recommendation 8: Address documentation risk and possible implicit support in liquidity risk management, including covenants in complex products.
• Recommendation 9: Establish policies for identifying and estimating collateral needs across different time horizons.
• Recommendation 10: Implement systems that reflect the procedures of different payment and settlement systems.
• Recommendation 11: Manage intraday liquidity on a gross basis regardless of the payment system used.
• Recommendation 12: Adopt an operational organization that supports short-term liquidity management within strategic objectives.
• Recommendation 13: Ensure internal methodologies capture all material cash flows and are regularly tested and reviewed.
• Recommendation 14: Conduct liquidity stress tests under various scenarios, including extreme but plausible ones.
• Recommendation 15: Have adequate contingency plans for liquidity crises and test them regularly.
• Recommendation 16: Maintain sufficient liquidity buffers to meet urgent needs during stress periods.
• Recommendation 17: Monitor funding sources for concentration and ensure a diversified funding base.
• Recommendation 18: Implement policies for the disclosure of liquidity risk management information to stakeholders.
• Recommendation 19: Supervisors should have methodologies to assess institutions' liquidity risk and management.
• Recommendation 20: Apply a proportionate supervisory approach based on institutions' risk profiles and systemic risk.
• Recommendation 21: Assess institutions' reliance on wholesale funding, maturity transformation, and collateral management when evaluating their liquidity risk profile.
• Recommendation 22: Ensure that institutions' liquidity risk strategies and procedures are adequate and effective in both normal and stressed times.
• Recommendation 23: Pay particular attention to the marketability of assets and the time needed to sell or pledge them during stress.
• Recommendation 24: Verify that institutions have robust crisis management policies, including stress tests and contingency plans.
• Recommendation 25: Consider using internal methodologies as a basis for supervisory requirements, provided they are adequately assessed.
• Recommendation 26: Use standardized regulatory approaches for less sophisticated institutions.
• Recommendation 27: Assess internal methodologies for governance, soundness, conservatism, and resilience when used for supervision.
• Recommendation 28: Ensure supervisors have access to precise and timely quantitative and qualitative data for effective oversight.
• Recommendation 29: Cross-border supervisors should coordinate closely to understand group liquidity risk profiles.
• Recommendation 30: Use available information to require timely remedial actions and explore early warning tools.

Key Challenges and Considerations

• The 2007-2008 liquidity crisis has shown that traditional assumptions about liquidity and risk are no longer valid.
• Increased interdependence between financial systems and cross-border flows requires more coordinated supervision.
• Collateral management, especially in the context of payment and settlement systems, is a critical area for risk mitigation.
• The role of rating agencies in assessing internal methodologies is important for supervisory trust and effectiveness.
• Institutions must maintain a diversified funding base and manage concentrations in liquidity sources, types, and markets.

Conclusion

CEBS emphasizes the need for a proportionate, converged, and robust approach to liquidity risk management, supported by strong internal governance, comprehensive methodologies, and effective supervision. The document serves as a foundation for revising current regulatory frameworks to better reflect evolving market conditions and systemic risks.