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Basel III liquidity monitoring tools

Summary:
Executive summary1 While the introduction of the Liquidity Coverage Ratio and Net Stable Funding Ratio have made the measurement of liquidity across banks and jurisdictions significantly more comparable and consistent, the ratios in isolation do not capture all aspects of a bank's liquidity risk. In January 2013,2 the Basel Committee therefore published its "Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools" (LCR and Tools). This paper contains a number of additional metrics for use by supervisors and banks. At the same time, the Committee recognises that supervisors may need to supplement these by using additional tools and metrics to capture jurisdiction-specific issues. The purpose of this document is to:3

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Executive summary1

While the introduction of the Liquidity Coverage Ratio and Net Stable Funding Ratio have made the measurement of liquidity across banks and jurisdictions significantly more comparable and consistent, the ratios in isolation do not capture all aspects of a bank's liquidity risk.

In January 2013,2 the Basel Committee therefore published its "Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools" (LCR and Tools). This paper contains a number of additional metrics for use by supervisors and banks. At the same time, the Committee recognises that supervisors may need to supplement these by using additional tools and metrics to capture jurisdiction-specific issues.

The purpose of this document is to:3

  • explain the five metrics presented in the LCR and Tools document as well as show how the data can be gathered;
  • show how the data and trends in the metrics can be analysed; and
  • outline the implications for supervision.

The paper also discusses data collection and design of liquidity reporting, to optimise the value of data for analysis and use by supervisors and banks.

 

1 The author is grateful for the support received by the FSI and especially Roland Raskopf. Paula Cristina Seixas de Oliveira, Central Bank of Brazil, and his colleagues at FINMA, the Swiss Financial Market Supervisory Authority, in particular, Tim Frech supported the work with helpful inputs. Furthermore, K P Ch'ng, Australian Prudential Regulation Authority, made very useful comments to this paper with respect to both the language and content. Finally language editing by Martin Hood was appreciated very much.

2www.bis.org/publ/bcbs238.pdf.

3 In line with para 175 of the January 2013 document.

International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

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