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Monday, October 05, 2009

U.K.: FSA Introduces Tighter Liquidity Requirements

by Calculated Risk on 10/05/2009 08:56:00 AM

Something similar to these requirements will probably be enacted internationally ...

From the Financial Times: FSA sets out tough new liquidity rules

UK banks and investment firms would have to increase their holdings of cash and government bonds by £110bn and cut their reliance on short-term funding by 20 per cent in the first year of tough liquidity standards put forward by the Financial Services Authority on Monday.
Excerpted with permission.
In future years, banks would have to reduce their reliance on short-term funding by 80 per cent from current levels and hold additonal liquid assets.

From the FSA:
Paul Sharma, FSA director of prudential policy, said:

"The FSA is the first major regulator to introduce tighter liquidity requirements for firms. We must learn the lessons of the financial crisis and we believe that implementing tougher liquidity rules is essential to ensure we are in a better position to face future crises.
The FSA will not tighten quantitative standards before economic recovery is assured. It plans to phase in the quantitative aspects of the regime in several stages, over an adjustment period of several years. This is to take into account the fact that all firms at present are experiencing a market-wide stress.
The qualitative aspects of the regime will be put into place by December 2009.

The FSA strongly supports the liquidity workstreams that are underway internationally although recognises that it may be some time before there is international agreement on specific proposals, Therefore, the structure of the new regime is sufficiently flexible to allow the FSA to amend it through time to reflect any new international standards.