The majority of respondents surveyed indicated centralised capital and liquidity management systems were in place. According to proponents, this approach promotes the efficient management of a group’s overall capital level and helps maximise liquidity while reducing the cost of funds. However, the respondents that favoured a “self-sufficiency” approach pointed out that centralised management potentially has the effect of increasing contagion risk within a group in the event of distress at any subsidiaries. The choice of capital management systems impacts the nature and design of intra-group support measures. Some firms indicated that the way they managed capital and liquidity within the group was a key driver in their decisions about the intra-group transactions and support measures they used.
Committed facilities, subordinated loans and guarantees appear to be the most widely used forms of intra-group support instruments. This trend appears to be consistent across sectors and jurisdictions.
While the existing regulatory frameworks for intra-group support measures are somewhat limited, firms do have certain internal policies and procedures to manage and restrict internal transactions. It is clear from the survey that the regulatory setting can have significant influence over the form in which institutions implement their intra-group support measures. At the same time, respondents pointed out that the regulatory and legal framework can make it difficult for some forms of intra-group support to come into force while supervisors aim to ensure that both regulated entities and stakeholders are protected from risks arising from the use of support measures. For instance, upstream transfers of liquidity and capital are monitored and large exposure rules can limit the extent of intra-group interaction for risk control purposes. Jurisdictional differences in regulatory setting can also pose a challenge for firms operating across borders.
Based on the survey and independent of remaining concerns and information gaps, single sector supervisors should be aware of the risks that intra-group support measures may pose and should fully understand the measures used by an institution, including its motivations for using certain measures rather than others. In order to obtain further insight into the intragroup support measures put in place by financial institutions within their jurisdiction, national supervisors should, where appropriate, conduct further analysis in this area.
Full report
© BIS - Bank for International Settlements
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article