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30.04.2009

FSA CP09-13

Liquidity Risk regulation is evolving at a fast pace and non more electric than the FSA regime. If you follow this link FSA then you get this regulators current thinking on why the reporting burden on banks is increasing through 2009.

Banks are in an inenviable position. Still reeling from horrific losses, capital raising, plummeting profitability and tarnished reputations, regulators have belatedly started to beef up regulations at the worst possible time for morale and capability.

However, the quote from the FSA

"While we recognise that our quantitative reporting requirements may be
costly to implement for many of the firms that fall within the scope of our Individual
Liquidity Adequacy Standards (ILAS) regime, we believe the data requested under the new
proposals would normally be required by most firms in undertaking prudent liquidity risk
management for their own purposes."

has merit. Banks should be running these kind of analytics in their own self interests anyway, they should not need to be told to do it. Self regulation is now seen as a quaint idea from another era.

But the challenges many banks face in pulling together the data necessary, reconciling it and presenting it to regulators as fact rather than wishful thinking.....well the challenge is enormous in the timescales set out by the FSA and others.

Markets

Spreads between EONIA and 3M Euribor still seem to be at a wide differential. On the 29th of April 2009 :

• Eonia was 0.511%
• 3M Euribor was 1.365%
• Differential of .854 points

compared to our last references to the rates on Thursday 22nd January :

• Eonia was at 1.498 %
  
• 3M Euriobor was at 2.254 %
• Differential of 0.756 points

We did think that differential had narrowed due to better Money Market conditions, but we shall have to look a bit deeper to discover what is really happening in the Interbank markets. Fear does still seem to be running high, but market observers are quoting a thawgin of markets.

If you have any observations to make on this subject please feel free to email ian.gilmour@pelican-consulting.co.uk

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