Banks search for certainty on liquidity rules

Kimberley Long
Published on:

The deadline is approaching for the Basel intraday liquidity rules. But without a defined set of procedures, and concerns around costs, banks are moving forward reluctantly.

Intraday liquidity reporting was supposed to be in place by January 1, 2015, according to the deadline that the Basel Committee on Banking Supervision (BCBS) set out in April 2013. 

Banks would need to provide their daily maximum liquidity usage and the availability of liquidity at various points throughout the day, the committee said. They would also be required to demonstrate their liquidity during various stressed situations.

Catherine Banneux-large
  The tight timeline and potential lack of resources may lead banks to take a pragmatic approach

Catherine Banneux

However, as the date approaches, it seems apparent that it is more a guideline for when implementation should start, rather than a hard and fast deadline. What’s more, local regulators are being left to make up their own minds on what shape the rules will take. The consensus now seems to be that 2017 is a more realistic date to expect the work to be completed by.

Full implementation might still be two years away, but the 2015 deadline did at least push institutions into confronting the issue. The process of overhauling banking systems and changing how liquidity is reported was never going to be something done easily in a short space of time. However, there are concerns at how many institutions are still opting to wait and see what rules are agreed before they start to do anything about them.

This approach is creating an environment of uncertainty across jurisdictions and between the banks.

Catherine Banneux, senior market manager, banking, at Swift, says: "In most cases the reason for not having initiated a project is that the bank is waiting for more detailed requirements from the home regulator. Many countries have indeed not yet translated the tools into detailed implementation requirements."

Swift’s latest data, gathered from 150 people across the financial industry, shows that 68% of banks have started work on projects related to BCBS monitoring tools. Of this 68%, just over half have started the initial evaluation and the remainder are in the implementation stage.

That leaves 32% of banks that have not started any process.

Divide developing

Differences are emerging between regions, split by how far along the process they have gone. A divide is also developing between nations, with some countries already taking steps to comply with the BCBS initiative. Singapore and Hong Kong, for example, have taken measures, but Canada seems to be taking the lead on the two-year extension by stating it will review the operational date for the new reporting tools, with its latest date set as January 1, 2017.

Swift’s research found that 64% of European banks have either initiated or begun implementing projects, compared with only 50% of Asian banks in the evaluation stage.

Starkly, 78% of banks that have started the implementation process are based in Europe or north America. Both those regions have strong regulatory frameworks in place already, but it demonstrates the gulf between different regions.

Christian Goerlach, head of balance sheet and liquidity management for financial institutions, global transaction banking at Deutsche Bank, says the Swiss banks have progressed particularly well in reaching the standards. In January 2014, Swiss regulator Finma sent a new liquidity circular, stating: "Banks must be able to demonstrate that they are in a position to reliably estimate and manage the consequences of an intraday stress event on the bank’s liquidity situation."

As Goerlach points out, only a very small number of institutions in the country need to be brought up to standard.

All of this data needs to be consolidated into comprehensive reporting for the regulators. We need to be very intelligent
as an industry as to how we approach this

Christian Goerlach

While not every market has decided what will be implemented, Banneux says one reassuring point came out of Swift’s research: "It is worthwhile noting that not a single respondent ticked the box: 'My home regulator has postponed the implementation deadline’."

Goerlach says the hope is that a framework will be created that is operational across all jurisdictions. "While it is somewhat unrealistic to expect a completely level playing field globally at inception, the topic will organically develop in the same direction," he says.

The market recognizes that collaboration will be needed to put in place a system that everyone can work to by 2017. Swift’s survey found that 89% of respondents thought collaboration was either essential or very important to reduce the overall implementation cost, and to increase the speed at which the data challenges can be solved.

"Collaboration can help, however there is also a need to start a project at individual level now," says Banneux. "The tight timeline and potential lack of resources may lead banks to take a pragmatic approach, leveraging the infrastructure and data formats they already have in place to feed a central intraday liquidity transaction database."