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FSA publishes feedback on liquidity DP

The majority of respondents to the FSA’s discussion paper on liquidity requirements for banks and building societies agree that quantitative requirements are a necessary component of any liquidity regime, says the regulator.

The FSA says the feedback also shows that respondents want a single quantitative regime to replace the existing three.

However, respondents were skeptical about the usefulness of quantitative requirements to safeguard against long-term chronic liquidity stresses and about the possibility of standardisation across institutions.

The regulator adds that most respondents say they are reviewing their stress testing scenarios and contingency funding plans in line with lessons learned over the past year.

The FSA says the majority stressed the importance of the close relationship between the central bank’s role, actions and provisions, and firms’ internal liquidity risk management processes, as well as measures developed by the FSA under a new regulatory regime.

Director of wholesale and prudential policy Paul Sharma says: “We welcome the wide range of feedback we have received to DP07/7. The responses contain useful comments and suggestions, which we will consider in detail as we develop our work on a new liquidity regime.

“We look forward to continuing our constructive engagement with the industry and other interested stakeholders and remain committed to full transparency throughout the ensuing consultation process.”

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