Central Bank modifying liquidity risk management framework
More changes are on the way for financial institutions as the Central Bank of The Bahamas is planning on modifying its framework on the management of liquidity risk, with the institution aiming to align that specific segment with international practices.
The move comes after the Central Bank reviewed the 2005 guidelines for the management of liquidity risk and wanted to bring it to conformance with the Principles for Sound Liquidity Risk Management and Supervision issued by the Basel Committee on Banking Supervision(BCBS)in 2008.
The proposed changes will apply to all public banks and trust companies, and all licensees of the Central Bank are encouraged to submit feedback or field questions to the bank’s Policy Unit of the Bank Supervision Department by January 31, 2011.
“Phase I will involve revisions to the existing guidance to bring them in conformance, where appropriate, with the revised principles as set out in the September 2008 BCBS paper.
“In phase II, the Central Bank will further review the liquidity framework in The Bahamas and propose appropriate changes, if necessary, to bring them in conformance with the BCBS’Basel III: International framework for liquidity risk measurement, standards and monitoring, which was published on December 16, 2010.
A number of changes will come with the revised guidelines, with certain key areas significantly expanded. Some of the modifications include
more detailed guidance on board and senior management accountability for liquidity policy and development and implementation, the critical need for reliable management information systems to measure, monitor and control liquidity risk under normal and stressed scenarios, and the need for a comprehensive and robust contingency funding plan, among other changes.
“The proposals contained in the revised guidelines simply expand upon themes and requirements addressed in the existing guidance, and the expectation is that most licensees would already be in compliance with these principles set forth the proposed revisions,”said the Central Bank statement.
“While there is a need to ensure the adoption of a prudent approach to the management of liquidity risk by licensees and consistency with international best practice as promulgated by the BCBS, the Central Bank recognizes that the degree of sophistication of a licensee’s liquidity risk management framework will depend on the nature, scale of complexity of a licensee’s activities, as well as the level of liquidity risk assumed,”noted the statement.