Review of Liquidity Policy (BS13)

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Liquidity Policy Review Consultation Paper #2 (Significant Policy Issues)

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Stage 2 consultation paper

We are undertaking a comprehensive review of our liquidity policy (BS13), known as the ‘Liquidity Policy Review’. The objective of our liquidity policy is to strengthen financial stability by lowering the likelihood of liquidity problems affecting banks and improve their ability to manage such problems.

Although we believe our existing liquidity policy remains broadly fit for purpose, it has not been comprehensively reviewed since it was implemented in 2010. Since that time, an international liquidity framework has been developed and implemented overseas. There have been a number of significant developments that support the case for reviewing the policy now, including our recent Liquidity Thematic Review and Liquidity Stress Tests, as well as the COVID-19 pandemic.

This stage of our liquidity policy review contains proposals on some of the significant policy issues related to the review, including:

the eligibility criteria for liquid assets
the potential adoption of international standards, and
how liquidity requirements could be applied across deposit takers in a proportionate manner.

The first stage of the review proposed and finalised 6 key principles that are now being used to guide the review.

How to make a submission

Feedback on the second stage consultation paper, as well as any other issues related to the review, is due by close of business on 12 May 2023.

We intend to issue at least 2 more consultation papers. The third consultation paper will be issued later in 2023 and will seek feedback on further policy issues. The fourth consultation paper containing the proposed final liquidity policy is set to be issued in 2024.

We welcome engagement with stakeholders throughout the review and invite any questions or comments on the review to [email protected].

Stage 1 consultation paper

In February 2022 we launched our first consultation paper for the Liquidity Policy Review, which set out the proposed issues and scope for the review. It also contained the principles we proposed be used to guide the review and our decision-making.

Respondents to the consultation supported reviewing our liquidity policy now. They agreed that given the developments in international practice since our liquidity policy was introduced in 2010, and our recent Liquidity Thematic Review, now was a good time to review the policy to ensure that it remained fit for purpose.

Submitters also generally agreed with the proposed scoping of the review, but asked that we consider the broader prudential landscape, including implementation of the forthcoming Deposit Takers Act, and the potential implications this may have for our liquidity policy. Bank submitters also provided a list of areas of the current liquidity policy that they thought we should focus on.

In response to feedback received, we also amended one of our review principles, to ensure that one of the aims of the review is to promote and facilitate consistent interpretation and implementation of our revised liquidity policy.

We intend to issue at least 3 more consultation papers as part of the review, with the entire review spanning approximately 3 years. The second and third consultation papers will seek feedback on a number of fundamental issues related to our liquidity policy, with a fourth consultation paper expected to contain the proposed final liquidity policy text.