Global Watch – Connected Regulators

Liquidity Management is one of the most avidly monitored areas within the bank given its impact on critical areas such as market operations undertaken by the bank, product pricing strategy, etc. to name a few.

Historically, central banks have had their own metrics and tools to monitor liquidity. MAS in Singapore, for example, has the Minimum Liquid Assets or MLA which has its classification framework for assets based riskiness. Banks had to ensure that at least 24% of overall assets were liquid. The MLA number has to be computed every day and reported on a monthly basis.  The Indian central bank on the other hand monitors inflows and outflows across different maturity buckets thus closely tracking any mismatches. However, it was only after the 2008 financial crisis, that a globally accepted standard for Liquidity Monitoring has emerged in the form of LCR/ NSFR reporting accompanied by a stress testing framework.

While several central banks have come up with timelines for LCR /NSFR compliance, they have created parallel liquidity monitoring tools and metrics like the FR20152a of US. Across the Middle East, Asia, Europe and the Americas, regulators have already published the LCR/NSFR roadmap largely culminating in 2019. In Singapore, the transition to LCR/NSFR regime has been mandated only D-SIBs. However, many banks are choosing to adopt LCR/ NSFR reporting owing to its global acceptability.

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