The Basel Committee on Banking Supervision has completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the Sound Principles remain fit for purpose, and the Committee advises banks and supervisors to remain vigilant of liquidity risks in financial markets.
The Sound Principles underscore the importance for banks of establishing a robust liquidity risk management framework. As implementation of all its standards and guidelines is a high priority for the Committee, a review of the Sound Principles was initiated in 2017. The review also covered liquidity risk-related developments in financial markets since 2008.
Based on information provided by each Basel Committee-member jurisdiction, the review concluded that:
- all Committee member jurisdictions have implemented the Sound Principles through regulation, published guidance or supervisory practice;
- the global liquidity standards introduced under Basel III – the Liquidity Coverage Ratio and Net Stable Funding Ratio – are important complements to the Sound Principles. As such, banks and supervisors should continue to heed the broader liquidity risk management considerations set out in the Principles; and
- significant developments in financial markets since the Sound Principles were published in 2008 are likely to have an important bearing on a bank’s liquidity risk management considerations. These developments include the increasing digitisation of finance and payment systems and the broader growth of financial technology; a greater use of central clearing of derivatives and margining; and the increasing risk and magnitude of cyber-attacks.
The Basel Committee expects market participants to remain vigilant in their liquidity risk management. In line with the Sound Principles, banks’ risk management and supervisors’ practices should be consistently and rigorously applied through the economic cycle, regardless of market liquidity conditions.