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BSA conference: FSA chief exec denies imposing increased liquidity ratios of 35%

FSA chief executive Hector Sants has denied suggestions it has required some firms to increased liquidity ratios to 35 per cent.

Speaking at the Building Societies Association conference in Manchester, Sants said: “I would like to make clear today that is simply not true. We have never said that. Our historic numeric limit continues to apply that societies should hold 8 day liquidity in excess of 3.5 per cent of the total funding liability.”

Sants also denied reports that it had set a new minimum liquidity requirement of 20 per cent. “These reports suggest that this has had an effect of reducing mortgage lending capacity by various numbers of around several billion pounds. These assertions are also incorrect.”

“What is true in this case is that 20 per cent liquidity has been the overall sector average for a number of years. With many societies themselves choosing to hold liquidity above that value. If firms are below this level it has been a trigger, a prompt, to initiate a more intensive dialogue with that society on its funding model. 20 per cent therefore is not a minimum requirement, but a trigger for discussion.”

He added: “At no point are we seeking to apply specific restrictions on lending by societies. What we are doing is what is expected of us as a reflective regulator, mainly ensuring that firms’ funding models are sustainable and that societies can give us the necessary assurance that allows us to know that retail depositors can have confidence that their money is safe.”

Sants stressed that the FSA had not changed its policy on appropriate liquidity and funding.

“The short answer is no. As a principles based regulator the key underlying principle has always been that societies need to meet our thresholds and conditions by having a credible and sustainable funding model, as set out in our existence guidance.”

Sants said that as you would expect in these more difficult financial markets firms do face increased funding risk and this does need to be taken into account.

He said: “We have been collecting add information on your liquidity arrangements and funding plans. I do by the way that such an increased information flow is a demand on your time and resources and we are grateful for the understanding and support you have shown.”


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