Joint Industry Trade Associations' Response to the BCBS Principles for Sound Liquidity Risk Management and Supervision

Abstract

Firms, regulators and central banks alike have learned much from the market disruptive events of the past year in particularly the importance of cooperation between all the authorities involved including central banks, not just domestically but internationally as well. So we support the paper’s recommendations promoting the greater consistency and convergence of supervisory practices on liquidity risk management to enhance cross-border regulation and supervisory cooperation through international colleges of supervisors. The harmonization of these standards across national boundaries should be a primary objective of supervisors to reduce regulatory complexity and simplify the risk management processes of firms across multiple legal entities and jurisdictions. Thus we would suggest that Principle 17 be expanded to encourage consistency and harmonization of regulation. This is consistent with the recommendations of the Financial Stability Forum in their April 2008 report on “Enhancing Market and Institutional Resilience”. When introduced these principles will more closely reflect the way in which internationally active firms already manage their liquidity – based on a holistic, group wide approach. A consistent, principle based liquidity supervision regime, within an international framework to coordinate supervisory requirements and actions will reduce regulatory duplication and reduce the possibility of trapped pockets of liquidity in cross-border funding. We encourage a proportionate and flexible approach to liquidity risk management and supervision that allows global firms to utilise their own integrated, internal methodologies while providing less complex firms with a universal standardised approach. Such an approach allows for strong,