Liquidity

Background

Sections 39-41 of the Non-bank Deposit Takers Act 2013 allow for regulations to be made to impose liquidity requirements in the trust deeds of licensed NBDTs.

Liquidity is the ability of a solvent entity to meet financial obligations as they come due. For a financial institution, this means ensuring it has sufficient cash or access to cash at minimal cost, to meet financial demands. Liquidity provisions are generally aimed at ensuring that NBDTs maintain prudent levels of liquidity to enable them to withstand a plausible range of shocks.

Liquidity Requirements

The Deposit Takers (Liquidity Requirements) Regulations 2010 came into force on 1 December 2010. These regulations require every licensed NBDT and its trustee to ensure that the NBDT's trust deed include one or more quantitative liquidity requirements that are appropriate to the characteristics of the licensed NBDT's business, and that take into account the liquidity of the NBDT and the liquidity of any borrowing group.

The Reserve Bank has also published quantitative liquidity requirements guidelines. These guidelines are intended to assist licensed NBDTs and trustees with developing quantitative liquidity requirements that are appropriate for the licensed NBDT's business. The guidelines are non-binding and examples are provided for illustrative purposes.