Federal banking regulators are proposing a new liquidity monitoring regime, which would implement that portion of the new Basel III capital adequacy regime.
The Office of the Superintendent of Financial Institutions (OSFI) issued a draft guideline Thursday, which would establish the framework under which OSFI will assess whether a bank is maintaining adequate liquidity. The move to ensure greater oversight of banks’ liquidity forms part of regulators’ efforts to address certain weaknesses that were exposed in the financial crisis.
OSFI notes its draft guideline reflects the Basel Committee on Banking Supervision’s guidance on monitoring tools for intraday liquidity management, which would enable supervisors and payment and settlement systems overseers to monitor institutions’ intraday liquidity risk and their ability to meet payment and settlement obligations.
The draft, which is out for comment until January 24, 2014, aims to incorporate the liquidity-related requirements issued by the Basel Committee into OSFI guidance. The new Basel regime sets two minimum standards, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR), along with a series of liquidity monitoring tools for regulators.
The LCR standard is to be implemented on January 1, 2015, and OSFI is not planning for any phase-in period. It says it believes that Canadian institutions are well positioned to meet the proposed minimum LCR requirement by January 2015. Implementation of the intraday liquidity monitoring tools and NSFR will follow the Basel implementation timelines.
Comments on the proposals are due January 24, 2014; and OSFI expects to finalize the guideline in 2014.