Bank of England: Pillar 2 liquidity
12 May 2016
In this consultation paper, the PRA proposes a statement of policy on its approach to three aspects of Pillar 2 liquidity: intraday risk, debt buyback and non-margined derivatives. The CP also outlines the PRA’s Pillar 2 objectives and scope.
The PRA’s aim in publishing a first CP now is to:
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seek specific feedback from firms on those elements where its thinking is advanced enough to make specific proposals; and
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invite early views from industry on key future elements of the regime where it is not yet ready to make specific proposals.
The specific proposals on which the PRA seek feedback from firms are that:
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in general, the level of application for setting requirements under Pillar 2 will be aligned to the Pillar 1 approach;
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that in disclosing information about their liquidity position, firms should note that their publically disclosed Liquidity Coverage Ratios (LCRs) include high quality liquid assets (HQLA) required to cover Pillar 2 risks, with no further specific disclosure on their Pillar 2 requirements unless required by law;
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the PRA’s approach to assessing liquidity risk associated with debt buyback and non-margined derivatives will be based on supervisory discretion guided by the firm’s outstanding debt or exposures; and
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the PRA’s approach to assessing intraday liquidity risk will be based on the firm’s maximum net debits, the firm’s stress testing framework, the firm’s key characteristics such as whether it is a direct or indirect participant in payment and settlement systems, and the markets it operates in.
This consultation closes on Friday 12 August 2016.
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Full consultation paper
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