In line with its ongoing work around defining the global stance towards liquidity risk management, the Committee of European Banking Supervisors (CEBS) has this week published its response to public feedback on its Consultation Paper on Liquidity Buffers and Survival Periods (CP28). The response to the feedback request was far from overwhelming, with only 11 respondents, and the focus was largely on extending the list of eligible assets to be considered as suitable for a liquidity buffer and ensuring greater international coordination.
Last month, the governor of the reserve bank of Fiji, Sada Reddy, kicked off a series of discussions about the need for a new liquidity risk reporting regime in the countries based across the Asia Pacific region. Reddy told the annual gathering of bank supervisors from the Pacific that adjustments need to be made to regulation as a result of the stresses revealed by the financial crisis in order to compel firms to invest in a “robust liquidity risk management framework”.
Following the establishment of its new enforcement division earlier this year, this week, the US Securities and Exchange Commission (SEC) has indicated it will be broadening the remit of its insider trading investigations to cover markets beyond equities. The division, which is headed by director Robert Khuzami, will be focusing its investigations on complex instruments such as derivatives as part of the regulatory community’s crackdown on hedge funds.
Despite its failure thus far to elaborate on concrete liquidity risk reforms, the US regulatory community has been engaged in rather a lot of navel gazing of late with regards to pondering where it all went wrong. One such example is Federal Reserve Bank of New York president and CEO, William Dudley’s recent speech to the Centre for Economic Policy Studies (CEPS) Symposium on 13 November, during which he discussed the underlying causes of the crisis and potential remedies, including their possible impacts on the market.
Unlike its UK counterpart, the Canadian regulator is awaiting the recommendations of the Basel Committee on Banking Supervision (BCBS) before it pushes ahead with liquidity reforms. According to a recent speech by Mark Carney, governor of the Bank of Canada, delivered to l’Autorité des Marchés Financiers (AMF), the regulator will likely wait another year before it introduces new liquidity risk reporting requirements for Canadian financial institutions.
The UK Financial Services Authority (FSA) may have put its stake in the ground as the first regulator to tackle the tricky issue of liquidity risk reporting, but it has not gained a first mover advantage, said the majority of attendees to the FS Club’s November meeting in London last week. Audience members indicated that they believe the FSA may have been too hasty in its decision and this could have serious consequences for firms rushing to meet the December deadline for the systems and controls aspects of the new regime.
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It is not just the regulators that are mad keen on stress tests as the risk management tool du jour, institutional investors and asset managers are also convinced of their benefit for the future, according to a recent survey by vendor MSCI Barra. Although the majority of the pension funds and asset managers that took part in the survey do not currently run risk related stress tests, many are planning to do so in the next year or so.
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