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SIX YEARS ON

Back at SIBOS in 2008, some bankers were called home, advised by their employers that their credit and debit cards might not be good for anything. You could debate the cause of the credit crunch, but the fall of Lehman Brothers heralded a liquidity crisis, which, in turn, revealed a capital one.

“The fall of Lehmans sparked a greater financial crisis than any of us could remember. It offered us a compelling reminder of some of the basic banking disciplines, and risks – liquidity risk, funding risk, intraday credit risk – which if we hadn’t completely ignored them, we hadn’t exactly had them at the forefront of our thinking.” Ashley Dowson – Chairman The SEPA Consultancy.

The six years since have been taken up by efforts by national politicians, currency supervisors, and other regulators to make sure that the capital and liquidity positions of financial institutions are sufficiently strong to ensure that stressed markets, counterparty failures and the like never again cause the need for governments to bail out major banks again. And it will be another four years before all of the recommendations made in Basel III are completely applied.

The January 2015 deadline for the implementation of the BIS Liquidity Coverage Ratio and the reporting requirements for intraday liquidity usage (BCBS 248) however brings the shorter-term liquidity problem into sharp focus. This begs several questions.

  1. Is compliance with the new liquidity and capital regulations sufficient?
  2. Is this just a risk management and Treasury problem?
  3. Are we going fast enough?

We believe that the answer to all three questions is a resounding “no.” More could and should be done, to the benefit of both banks and their customers.

In a series of blogs over the next couple of weeks we will explore the issues arising from these important questions.

This is a reprint of the opening article from TSCL’s recent Newsletter 17 – for more information and a copy of the full Newsletter, please email info@sepa.eu.com