Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards
Please refer to the ‘First Bi-monthly Monetary Policy Statement, 2014-15’ announced on April 1, 2014, wherein it was proposed to issue guidelines relating to Basel III LCR and Liquidity Risk Monitoring tools by end-May 2014 as the liquidity coverage ratio (LCR) stipulated by the Basel Committee becomes a standard with effect from January 1, 2015.
2. It may be recalled that based on the documents, ‘Principles for Sound Liquidity Risk Management and Supervision’ as well as ‘Basel III : International Framework for Liquidity Risk Measurement, Standards and Monitoring’ published by the Basel Committee on Banking Supervision (BCBS) in September 2008 and December 2010 respectively, the Reserve Bank had placed the Draft Guidelines on Liquidity Risk Management and Basel III Framework on Liquidity Standards on its website in February 2012 for comments and feedback. Taking into account the comments and feedback received, the guidelines on ‘Liquidity Risk Management by Banks’ were issued vide circular DBOD.BP.No.56/21.04.098/2012-13 dated November 7, 2012. It was mentioned therein that as the Basel III liquidity standards were at that time subject to an observation period / revision by the BCBS with a view to addressing any unintended consequences that the standard might have for financial markets, credit extension and economic growth, the final guidelines on Basel III liquidity framework would be issued once the BCBS revises the framework.
3. The BCBS has since published ‘Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools’ in January 2013. Further, the ‘Liquidity Coverage Ratio Disclosure Standards’ have been published by the BCBS in January 2014. Accordingly, the final guidelines on the LCR, Liquidity Risk Monitoring Tools and LCR Disclosure Standards are enclosed in the Annex. The LCR will be introduced in a phased manner starting with a minimum requirement of 60% from January 1, 2015 and reaching minimum 100% on January 1, 2019.