Basel to tackle liquidity
(20 June 2008 – Global) The Basel Committee has issued draft guidelines to tackle liquidity risk by addressing weaknesses revealed by the credit crunch.
The Committee indicated in April that because of the significant risk management weaknesses that have been revealed at banking institutions due to the credit crunch, they would develop global sound practice standards for liquidity risk management.
The guidelines have specifically been developed for the management and supervision of liquidity risk and are aimed at making the global banking system more resilient.
The Committee, part of the Bank for International Settlements (BIS), has made significant amendments to the liquidity guidelines that it published in 2000, adjusting to the lessons learned from the credit crunch.
Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, indicated that a tough stance would be taken on the implementation of the new principles.
Wellink also said that both banks and supervisors would be monitored to ensure implementation and that the Committee would vigorously assess the degree to which the principles are implemented.
The standards outline the need for governance and the articulation of a firm-wide liquidity risk tolerance as well as more effective liquidity risk measurements, including the capture of off-balance sheet exposures and other contingent liquidity risks that were not well managed during the financial market turmoil.
The guidelines have specifically been developed for the management and supervision of liquidity risk and are aimed at making the global banking system more resilient.
The Committee, part of the Bank for International Settlements (BIS), has made significant amendments to the liquidity guidelines that it published in 2000, adjusting to the lessons learned from the credit crunch.
Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, indicated that a tough stance would be taken on the implementation of the new principles.
Wellink also said that both banks and supervisors would be monitored to ensure implementation and that the Committee would vigorously assess the degree to which the principles are implemented.
The standards outline the need for governance and the articulation of a firm-wide liquidity risk tolerance as well as more effective liquidity risk measurements, including the capture of off-balance sheet exposures and other contingent liquidity risks that were not well managed during the financial market turmoil.
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