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The BCBS and how not to review intraday liquidity progress

Regular readers of my posts will know that I’m a bit of a policy wonk. I find myself digging into obscure reports, documents and opinion pieces on all things liquidity related, particularly where there is an intraday angle.

So, imagine my delight when I picked up the “12th progress report on adoption of the Basel regulatory framework” (http://www.bis.org/bcbs/publ/d404.pdf). I like to read such treasures, translate the complexity inside and share what it all means to those with more sensible things to do with their time.

As I hoped there is some interesting feedback on the rollout of intraday regulation. But on this occasion, I’m not sure how to reveal what I really think. Please read on…

What is the progress report about?

This is the regular report that the Basel committee issues to say how each country is getting on in implementing the various ‘Basel standards’. It covers 27 member jurisdictions (actually 28 as they include the EU as a separate entity).

It covers many items across risk-based capital and liquidity standards. For the first time this latest progress report includes intraday liquidity and explains how each member is getting on with implementing the BCBS248 intraday regime (http://www.bis.org/publ/bcbs248.htm).

What does the report say?


This is where it gets interesting. Apparently 20 out of the 27 members have fully implemented the BCBS248 regime. I find this a simply staggering finding. I know from my discussions around the globe that very few regulators have implemented a regime where all their banks are providing monthly reports on their intraday positions. Yet according to the report:

  • Australia has fully implemented its regime. Now I’d love someone in Australia to show me a submitted intraday report, as all the banks I have met have told me that this reporting is not yet required (and APRA has explicitly stated that it isn’t yet asking for intraday reporting, see http://www.apra.gov.au/adi/Pub... EU has fully implemented too. That will be a major surprise to everyone in Europe, especially as the European Banking Authority has defining an intraday regime on its work programme for 2017, having deferred it from 2016
  • The Brazilians nailed this in May 2012, about a year BEFORE the BCBS248 guidelines were even published (which might explain why the Brazilian regime is silent on intraday risk arising from correspondent banking)

There are many other discrepancies between the reported position and the evidence that I have seen on my travels in the real world. A few generic themes appear:

  • Where the BCBS has actually done a detailed review into the member’s progress on liquidity (typically a RCAP review on LCR) and has picked up intraday at the same time, the progress report’s conclusions are pretty much bang on (i.e. I agree with them!). But in the absence of a comprehensive review then the BCBS can come up with strange findings…
  • The report seems to be very generous to the EU and English speaking territories. But Asian countries are often called out as making no progress at all (China, Korea, Japan)
  • A special mention to the USA, which the report implies is making no progress on BCBS248, yet I know it is specific pressure from the Fed on intraday that is driving major change in banks (both major US-owned banks and foreign-owned with significant US operations)

What does all this mean?

Frankly it’s hard to say as I can suggest a few, possibly conflicting, hypotheses:

  • There isn’t enough intraday risk experience in the regulatory community generally
  • A quick desk review is no substitute for visiting a member jurisdiction and doing the review job in detail
  • Perhaps the BCBS is more interested in banks actually managing intraday risk, rather than filling in templates, so is content to only see the ‘spirit’ of BCBS248 being implemented

Now does any of this really matter, other than to a perfectionist policy wonk like me? Maybe yes, maybe no – ultimately local regulators will still make intraday liquidity risk assessments when supervising their banks. But remember, I’ve only focused on one of about 18 items that make up the Basel III progress review.

Let’s hope the remaining 17 areas have been reviewed thoroughly and attention is being focused on any laggards generating risk to the global financial system.

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