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Turner review ups the ante on liquidity risk management


Turner review ups the ante on liquidity risk management

 

Flash update – 300+ new pages on ‘what good risk management looks like’ released today

London – 18 March 2009.  Today’s Turner Review and FSA 09/2 have revamped the global debate about risk management in advance of US and European discussions which conclude this summer.  In two substantial and well-structured documents, the UK’s FSA has challenged the global assumptions which have underpinned the markets, and set forth a number of ways in which the UK plans to restrict current market practice through new regulations.

Lord Turner has significantly extended the scope of the regulatory framework, and though the approach is principles-esque, it contains significantly more detailed recommendations about how to manage a bank.  Banks have traditionally pushed back on overly prescriptive approaches as they are not well understood by politicians or regulators.  The FSA has clearly passed the ‘weight test’ in an attempt to change this view.  What remains unclear is how their approach will play on the global policy and regulatory stage, however, it is clear that a ‘leave the knowing of our business to us’ approach will bring about an uphill battle for the industry. 

As JWG-IT expected, liquidity risk has featured as an important regulatory gap. The FSA is pushing urgently to rebalance its focus on minimum liquidity and minimum capital.  JWG-IT now expect that the many aggressive responses to CP 08/22 on 4 March are likely to fall on deaf ears.  The implications of today’s FSA publications are quite clear: granular, enriched and ‘on demand’ data is required for any single bank to avoid loss of confidence in their institution.

There is one hint of good news.  The back-office can now look to a phased implementation of new liquidity risk requirements “through to 2010.”  Given the enormity of the implementation task, this will be welcome news.  Less exciting to the liquidity risk report writers struggling to make their Basel II infrastructures meet demanding requirements, will be the introduction of another discussion about the macro-prudential liquidity ‘core funding ratio’ on the cards for 2010.  

PJ Di Giammarino, CEO JWG-IT, said, “By throwing the gauntlet down before traditional risk managers, the FSA has demanded that the banks rise to the challenge of proactively identifying and remediating risks.  Banks need to wake up to the fact that these new regulations are upon them, and they’re coming fast.”  JWG-IT recommends that banks make moves now to understand the new data models and infrastructures required to ‘know your bank’ in 2009.

JWG-IT expects the FSA’s challenge to what a bank does and, perhaps more importantly, what it should not be doing, to intensify throughout the run up to next month’s G-20 and the FSA to take pole position in the international debates that will follow on.  Given the glacial pace at which MiFID was passed and implemented, this could be a good thing.

Will the UK’s views prevail on the continent and in the US this summer when the rules are rewritten?  Will regulators know better?  How long will it take before these new rules of the game are enforced?  The answers to these questions are unclear.

The voice of the industry is overshadowed by that of public opinion.  The level of endorsement from the G-20 meeting will be a clear indicator of how global or fragmented this discussion will become.  Now is the time for Europeans and Americans to get their act together if they want to be taken seriously. All eyes should be on London on 02 April – the global banking infrastructure depends on the results. 

For more information on the liquidity risk management report, ‘Liquidity risk: the new imperative’, see: www.liran.eu

About JWG-IT Group Limited

JWG-IT is the only financial services industry think-tank to facilitate collaborative work to resolve industry issues created by regulatory change.  Based on a working model started in 2005, JWG-IT has established strong relationships with EU administrators, leading firms and companies.  It is neither lobbyist nor consultancy and revenues are restricted to membership and event fees and content sales.  The JWG-IT Think-Tank is designed to help members and participants manage regulatory-driven change better, quicker, cheaper and with less risk.  JWG-IT launched the customer data management group and the liquidity risk action network in 2008.  For more information, see www.jwg-it.eu.

 

For immediate release

Business contact : PJ Di Giammarino, pj@jwg-it.eu, +44 (0) 7811 430 503

Communications contact : Scott McLean, Scott.McLean@hotwirepr.com +44 (0) 7950 251 265



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