The Central Bank of The Bahamas (CBOB) is working to implement enhanced liquidity monitoring tools introduced by the Basel Committee on Banking Supervision, to ensure that banks maintain high-quality liquid assets to survive a “stress event”.
The Basel Committee is an international forum of central bank governors seeking to improve the quality of banking supervision worldwide.
The CBOB has released a discussion paper on Implementing Basel III: Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) for a 60-day consultation period.
“The consultation period will run from December 27, 2018 to February 28, 2019,” according to a CBOB release.
“The liquidity rules introduced by the Basel Committee provide SFIs (supervised financial institutions) with a credible and comprehensive framework for managing liquidity risks in their day-to-day operations. Further, they allow bank supervisors to monitor liquidity risks in a timely and more effective manner.”
The CBOB release explains that while the Basel standard “is intended for much more complex banking systems and capital markets”, the standards proposed locally will be simpler and cheaper to implement and carry out.
“This is in keeping with the Central Bank’s intent to develop prudential policies and regulations that balance safety, efficiency and competitiveness in the Bahamian banking system, while promoting financial system stability,” CBOB notes.
The liquidity discussion paper explains what will qualify as high-quality liquid assets; the calculation and requirements for the LCR and NSFR; and CBOB’s approach to implementing the enhanced liquidity monitoring tools.
Additionally, the Central Bank has the duty, in collaboration with SFIs, to set prudent and appropriate liquidity risk management requirements that reflect the risks SFIs undertake and the markets in which they operate.
“These reforms seek to ensure that a bank maintains sufficient amounts of high-quality liquid assets to survive a material short-term liquidity stress event, lasting 30 calendar days, and limit a bank’s reliance on volatile sources of funding, by ensuring that long-term or illiquid assets are funded by a minimum amount of stable funding,” the discussion paper explains.