Swiss central banker warns on liquidity risk
Central banks and financial supervisors in the Group of 10 (G-10) leading economies should increasingly focus attention on minimising the liquidity risks faced by banks, a top Swiss central banker said in December.
This is particularly relevant in respect of banks that are systematically important and internationally active, Swiss National Bank governing board vice-chairman Niklaus Blattner said.
The senior banking supervisors of North America, Europe (including Switzerland) and Japan - the economies that make up the G-10 group - also form the Basel Committee on Banking Supervision, the architect of the Basel II rules for bolstering bank safety.
Shortcomings in liquidity management may give rise to problems that cannot simply be resolved by adequate capitalisation such as that promoted by Basel II, Blattner told the Swiss central bank's end-of-year press conference.
It's not surprising that liquidity - the ease or otherwise with which a bank's assets can be turned into cash - is a primary concern of central banks, he said.
At the macro economic level, maintaining the supply of liquidity is a monetary policy task, he said. But at the micro level, it is the task of each bank to bring its solvency into line with the risks.
"This requires that the liquidity risks be correctly assessed and managed, and that assets, which can if necessary be used as collateral, be made available."
Blattner said the potential of capital adequacy regulation has not yet been exhausted, but other possibilities for ensuring bank safety should be investigated. "Complementing the capital adequacy approach with improved liquidity management of the banks seems to be a particularly promising measure."
Later, Philipp Hildebrand, a member of the central bank's governing board, said in January that securing liquidity remains a fundamental task for banks, given the steadily increasing volume of business in global financial markets.
"The challenge for banks is to set up liquidity planning procedures to secure reliable liquidity sources for exceptional circumstances. Liquidity risks must be correctly assessed and assets must be secured to serve as collateral when necessary," Hildebrand said.
Blattner's and Hildebrand's remarks echoed those made recently by other regulators, including Paul Sharma of Britain's Financial Services Authority (FSA).
Sharma noted in October that Basel II is almost silent on the liquidity risk - the risk of a mismatch between the term structure of the assets and liabilities - in bank trading books.
