âThe market turbulence of 2007/2008 led to unprecedented liquidity problems at a market level. The Financial Stability Forum, International Monetary Fund, Bank of International Settlements, the Committee of European Banking Supervisors and others have identified shortcomings in current liquidity risk management practices. However, the FSA has claimed regulatory first-mover advantage by introducing new operational requirements this year.
âIn an important shift, UK branches and subsidiaries of non-UK firms may not be able to rely on group liquidity arrangements unless prior permission is granted. Within this, JWG-IT analysis has found three major liquidity risk change imperatives for the banks:
â¢ Collation of broad and granular data relevant to all assets and liabilities âon- demandâ
â¢ Extensive new stress testing requirements
â¢ Senior management must be able to prove, at any time, that they were monitoring and controlling their liquidity risk as detailed by their individual adequacy standard.
âTo meet these requirements, the FSA estimates operational costs to firms to be Â£150 - Â£200 million. For large firms, implementation costs are estimated to be Â£6-Â£9 million with ongoing costs of Â£1-Â£2 million.
âWith deadlines set at Q3 this year, 2009 will prove a challenging year for finance, risk and technology departments as they face a new drip-feed of operating model changes. The UK has taken a position that will require firms to know much more about their business models globally. Firms should be mobilising their global programmes now and working together to establish âwhat good looks likeâ.â