Liquidity risk management consultation

15 September 2009

The Australian Prudential Regulation Authority (APRA) has released proposals to enhance liquidity risk management by authorised deposit-taking institutions (ADIs). The broad-ranging review of its current prudential framework for ADI liquidity risk management has considered a number of key factors. Financial market developments and changing ADI practices since the framework was introduced in 1998, lessons learned from the global financial crisis and recent international supervisory developments have all been important considerations. Associate Jane Newman outlines what to expect from the consultation process.

APRA states that the objective is to strengthen the resilience of ADIs to liquidity risk and improve APRA's ability to assess and monitor ADIs' liquidity risk profiles. 　

The proposed changes include:

enhanced qualitative requirements consistent with the Principles for Sound Liquidity Risk Management and Supervision, issued by the Basel Committee on Banking Supervision in September 2008;
extending the 'going concern' cash flow projection requirement to all ADIs and lengthening the projection to at least 12 months;
strengthening the current APRA-defined stress testing to ensure ADIs meet a minimum acceptable level of resilience, which includes:
lengthening the minimum survival horizon for the current APRA-defined 'name crisis' scenario from five business days to one month; and
an additional APRA-defined three-month 'market disruption' stress scenario; and
a standardised reporting framework for collecting regular liquidity data from ADIs, including the ability to access data at short notice in times of stress.

APRA expects to release a revised draft APS 210 and associated material for further consultation early in 2010. Final standards and reporting forms are expected to be issued in the first half of the year. Transition arrangements will apply as appropriate.　　

The Basel Committee on Banking Supervision is currently developing a global quantitative framework for liquidity risk supervision to complement its September 2008 Principles. APRA’s prudential approach and timetable may be amended as this international work evolves.

The consultation package can be found on the APRA website at http://www.apra.gov.au/policy/

For further information, please contact:

Jane Newman | Associate
Mullins Lawyers
t +61 7 3224 0369
f +61 7 3224 0333
jnewman@mullinslaw.com.au