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
2. Implementation phases
3. Disclosure report to public
4. LCR implementation in accordance with significant
currency
5. Assets that can be classified into HQLA
6. 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.
8. 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.