Capital and (for a change) Liquidity Buffers − speech by Victoria Saporta
Bank of England
14 July 2022
Capital buffers are only one of available instruments to support the banking system during periods of stress – there are other important instruments, including the vital liquidity buffer framework. And this is the new topic I would like to focus the second part of my speech today.
In summary, there is evidence suggesting that banks may be overly reluctant to use their liquid asset buffers when facing liquidity pressures. This could have negative impacts on markets and the real economy, and means that central banks may need to intervene faster and to a greater extent than is desirable.
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One solution could be the releasability of LCR in stress, through a counter-cyclical liquidity buffer that could operate in a similar vein with the CCyB. Releasing the liquidity standard in times of stress could communicate authorities’ views on banks’ forward-looking liquidity resilience and appropriate usage of liquidity buffers, supporting financial stability and market confidence.
The full speech is available at https://www.bankofengland.co.uk/speech/2022/july/victoria-saporta-speech-at-the-bank-of-england-capital-and-for-a-change-liquidity-buffers