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Review of Liquidity Policy (BS13)

We are undertaking a comprehensive review of our liquidity policy (BS13), known as the Liquidity Policy Review (LPR).

Release of the second consultation paper's summary of submissions and key decisions

In our second consultation paper (C2) for the Liquidity Policy Review, we indicated that we would publish a summary of submissions and key decisions document in approximately Q3 2023.

However, as we continue to analyse the feedback we received and the potential impacts of any policy changes, we expect to release this document in Q4 2023.

Given this change in timing, we expect to release the third consultation paper (C3) in Q2 2024. We intend to include C3 in our broader consultation on the core standards of the Deposit Takers Act. The fourth consultation paper (C4), an exposure draft, will also be aligned with the core standards timeline.

About the consultation

We are undertaking a comprehensive review of our liquidity policy (BS13), 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 improving 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 then, an international liquidity framework has been developed and implemented overseas. There have been several 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.

The first and second stages of consultation

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

The second stage of the review contained 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.

Feedback on the second stage consultation paper closed on 12 May 2023.

Consultation next steps

We intend to issue at least 2 more consultation papers.

  • The third consultation paper (C3) will be issued in Q2 2024, seeking feedback on further policy issues.
  • The fourth consultation paper (C4) 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].

Past consultation information

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.