Consultative Paper on Liquidity Coverage Ratio in Basel III Framework

Sep 30 2014
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Financial Services Authority, October 1, 2014: Global financial crisis in 2008 has given one priceless lesson that strong capital alone cannot make a bank survive the crisis. The experience in facing crisis showed that although a bank has sufficient capitalization, the bank may have problems if it does not enough liquidity to cover the shock. Therefore, as in capitalization, a certain standard in measuring minimum level of liquidity is required and must be maintained by banks to anticipate crisis, and be applied internationally.

In January 2013, a final document on calculation framework for Liquidity Coverage Ratio (LCR), which is one of calculation standards to measure risks of bank liquidity as a part of Basel III framework, has been publicized by Basel Committee on Banking Supervision (BCBS). The LCR calculation framework aims to stimulate short-term tenacity based on risk profile of bank liquidity by making sure that a bank has sufficient high quality liquid asset (HQLA) so that the bank is able to survive significant crisis scenario within 30 calendar days.  

Indonesia as BCBS member is committed to adopt Basel III framework, including LCR framework, by keep considering about its impacts on national banking. Therefore, implementation of LCR in Indonesia will be carried out carefully with some adjustments made accordingly with national condition.

This Consultative Paper is released with the aim to get inputs from various parties regarding LCR framework before regulation on the subject is issued. Some of expected inputs are regarding:
1.       Implementation coverage
Implementation phases

3.       Disclosure report to public
LCR implementation in accordance with significant currency

5.       Assets that can be classified into HQLA
Stable and unstable deposit

7.       Proposal on run off rate for obligation regarding other contingency funding such as: trade finance instrument; guarantees and letters of credit unrelated to trade finance obligations; other non-contractual obligations; bond issuers that are affiliated with dealers or market makers. Banks are asked to give inputs on the amount of appropriate run off rate based on their historical data.
Treatment on intra-group transactions.

As a part of prudential principle in carrying out banking business, OJK considers that measures are required to prepare good implementation of LCR framework so that it will be applied in accordance with the stipulated deadline thus can contribute positively to Indonesia`s banking industry development in the future.

Complete exposition about Liquidity Coverage Ratio (LCR) as a part of Basel III framework can be viewed in Consultative Paper, which can be downloaded by clicking PDF icon at top-right corner.  

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