CEBS technical advice on liquidity risk management – part 2

18 September 2008

The advice sets out CEBS views on liquidity risk management and lays down 30 specific principles-based recommendations on liquidity risk management and supervision, notably in the light of recent market events.

The advice sets out CEBS views on liquidity risk management and lays down 30 specific principles-based recommendations on liquidity risk management and supervision, notably in the light of recent market events.

 

The first 18 recommendations are targeted at credit institutions and investment firms established in the EU to ensure that adequate liquidity risk management for both normal and stressed times is in place.

 

The Board of Directors is ultimately responsible for an institution’s liquidity risk strategy and risk tolerance. Appropriate responsibilities and incentives, in line with long-term objectives, should be set by senior management.

 

The last 12 recommendations target liquidity risk supervision. Supervisors should consider whether their requirements could be supplemented or replaced by internal methodologies.

 

Enhanced coordination between supervisors should be pursued, notably through active use of colleges or through delegation of tasks.

 

The advice is divided into four main parts:

• Part I elaborates on the nature and definitions of liquidity and liquidity risk, as a precondition for common supervisory understanding and possible convergence;
• Part II presents recent changes in the liquidity risk environment;
• Part III describes liquidity risk management practices at financial institutions8; and
• Part IV analyses the main challenges for the supervision of liquidity risk management.

 

The first part of CEBS advice to the Commission was published in August 2007.

 

Press release

Part 2 of the advice (September 2008)

Consultation feedback document

Part 1 of the advice (August 2007)

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