Liquidity risk regulation in the UK

下面为大家整理一篇优秀的assignment代写范文- Liquidity risk regulation in the UK，供大家参考学习，这篇论文讨论了英国的流动性风险监管。英国的流动性监管新政策对金融机构在流动性风险管理的系统与控制方面提出了更高要求，重视流动风险压力测试和应急融资方案的建立。在对金融机构实施差别监管的同时，对流动性缓冲的构成提出了更高的要求。此外，新政策还对跨境跨集团的流动性监管做出更为严格的规定，对流动风险报告的种类、频度要求也都大幅提高。

In spite of a long-term development, Britain has had a mature mixed supervision mechanism, but in the current global financial crisis, the financial institutions, by the fourth quarter of 2009, all UK financial entities writedowns and losses totaling $240 billion, to compensate for the losses and raise capital has amounted to $182.3 billion. Although British financial institutions have passed the survival crisis stage at present, the shocks and losses they suffered in the crisis have also fully exposed the deficiencies in the British financial regulatory system.

First, there is a lack of regulation on market failure. Under the background of diversified operation, financial innovation tools have been renovated, business scope has been continuously expanded, financial product categories have been continuously increased, and its leverage ratio has also been rapidly increased. Under the temptation of high profits in the short term, financial institutions abandoned the sustainable and steady development in the medium and long term and adopted the high-risk operation mode. In the case of market mechanism regulation failure, the financial services authority failed to implement effective regulation, resulting in the continuous accumulation of risks, and eventually the outbreak of crisis.

Second, inadequate supervision and prevention of systemic risks in financial markets. London is one of the most important international financial centers with open cross-border capital flow conditions and loose financial supervision system. The booming financial markets have led the fsa to fail to monitor and prevent systemic risks. Even when the us subprime mortgage crisis broke out in July 2007, the UK financial services authority still maintained an optimistic judgment on its financial market and failed to take adequate preventive measures before the global financial crisis broke out.

Third, insufficient supervision and prevention of liquidity risks in financial markets. Before the outbreak of the crisis, although the UK financial services authority has paid some attention to liquidity, it still failed to prevent the outbreak of liquidity risks in the UK financial market. A run on northern rock broke out in September 2007 and the bank was eventually bailed out by temporary nationalisation. The northern rock bank run has highlighted the inadequacy of the UK financial services authority in the supervision and prevention of liquidity risks in financial markets.

In February 2009, the British parliament passed the banking act 2009, which strengthened the supervision of the banking industry, and made substantial adjustments to the financial supervision system. The act stressed the central role and statutory responsibilities of the bank of England in financial stability, expanded its financial stability policy tools and authority to a certain extent, and established the financial stability board under the board of governors of the bank of England, which is equivalent to the existing monetary policy board. The FSC consists of the governor of the bank of England, two deputy governors and four non-executive directors, with the governor of the bank of England as chairman. The white paper on financial market reform, launched in July 2009, proposed the establishment of a new financial stability council to analyze and investigate risks to the financial stability of the UK economy and to respond to them. The CFS is made up of the bank of England, the financial services authority and the Treasury, chaired by the chancellor. The white paper further highlights the key role of the fsa in preventing financial risks and strengthens its multiple functions in financial regulation in an effort to reduce the harm caused by systemic risks.

In October 2009, the financial services authority of the UK formally issued a policy announcement on strengthening liquidity regulation after taking strong reform measures against systemic risk. Before the introduction of this new policy, three drafts for soliciting opinions have been issued and collected and repeatedly revised by various opinions in the industry, trying to control the liquidity risk and maintain the stable development of the financial market on the premise of maintaining the status of the UK as an international financial center and the competitiveness of the UK banking industry.

It is worth emphasizing that although the UK was not the birthplace of the global financial crisis, it was the first country in the world to implement enhanced liquidity quantitative regulation policies and higher liquidity buffer standards. The introduction of the new liquidity policy not only further demonstrates the determination of the UK financial regulators to strengthen financial supervision and prevent financial risks, but also the specific implementation measures for the micro level of the financial market proposed by them after the introduction of the framework reform of financial supervision.

The new liquidity regulation policy puts forward higher requirements for financial institutions in the system and control of liquidity risk management, attaches importance to the establishment of liquidity risk stress test and emergency financing scheme, and puts forward higher requirements for the composition of liquidity buffer while implementing differential supervision on financial institutions. In addition, the new policy also makes stricter regulations on cross-border and cross-group liquidity supervision, and significantly increases the requirements on the types and frequency of flow risk reports.

The outbreak of financial crisis has revealed the defects of financial institutions, especially the financial institutions with mixed operation, in the aspects of liquidity risk control and systematic management. Therefore, the new policy puts forward higher requirements on liquidity risk control and system management. These requirements will apply to institutions within the scope of the prudential practices information manual for Banks, building societies and investment companies to ensure their sensitivity to liquidity risks and to facilitate their actions to mitigate risk outbreaks. The specific requirements include three aspects, namely liquidity risk management, liquidity risk stress test and emergency financing plan. According to the requirements of these three aspects, financial institutions should establish a stable liquidity risk management framework, and the behavior of senior management should be consistent with the company's liquidity risk preference, and adjust the liquidity risk preference of financial institutions based on the results of liquidity risk stress test and emergency financing plan.

The financial crisis has shown that previous liquidity rules do not guarantee that financial institutions are resilient and defensive enough to withstand severe long-term liquidity pressures. In view of this, the fsa has introduced the individual liquidity adequacy criteria, which contain three aspects: the individual liquidity adequacy framework, the liquidity regulatory review process, and the individual liquidity guidelines.

Financial institutions need to establish their own liquidity adequacy framework, distinguish different risk factors and calculate their net capital outflow before the implementation of management behavior, so as to determine the size of their liquidity buffer. According to the business scope and risk characteristics of the company, the financial services authority will regularly implement the liquidity supervision and verification procedures for the company, and on this basis, formulate individual liquidity guidelines for the company with the number of liquidity buffers and financing channels as the main content, so as to achieve differentiated supervision of financial institutions.

The fsa requires financial institutions within the scope of the individual liquidity adequacy criteria and the information manual on prudential practices of Banks, building societies and investment companies to maintain a certain stock of high-quality government bonds, central bank reserves and multilateral development bank bonds to meet the regulatory liquidity buffer requirements. Under the liquidity standards, central Banks' demand deposits and the tradable securities they issue are included in the liquidity buffer, while government bonds include only a range of high-quality government bonds, including Australian government bonds. But given that local regulators require financial institutions to hold liquidity buffers in the local currency, the fsa has made some limited exemptions for individual liquidity guidance. According to the quality of a company's liquidity risk management, the size of the liquidity buffer will be graded, and financial institutions with lower quality in terms of stress tests, contingency financing plans and management will be required to maintain larger liquidity buffers.

The fsa requires that financial institutions' liquidity buffers consist of a mix of certain qualified assets in an appropriate proportion and should not be designed as profit-seeking instruments. For example, a large international bank should have a diversified portfolio of government bonds, given the different liquidity of government bonds of different maturities and yield curves of different structures. The choice of government bond currency should be based on the potential problems of Banks in foreign exchange swap and spot market under pressure conditions, especially the settlement cycle in foreign exchange settlement system. For these reasons, the fsa wants Banks in Britain, whose main liabilities are sterling, to use gilts as the bulk of their buffers.

Under the new liquidity standards, cross-border groups are subject to stricter liquidity supervision, requiring all foreign bank branches and subsidiaries to prove that they are self-sufficient in liquidity without exemptions. This requirement requires a branch to hold a local, actionable liquidity reserve, depending on the liquidity exposure risk that the branch is exposed to between groups, as specified in the individual liquidity fit criteria.

Liquidity reserve requirement aims at two aspects: one is to ensure that branches have certain ability to cope with local liquidity outflow. The second is that the use of the liquidity reserves themselves also allows companies to be alerted to liquidity problems at an early stage. Although the liquidity reserves does not provide complete protection for bankruptcy risk, also cannot to impending problem to provide a clear warning, but given the branches behind about the liquidity risk of the whole bank, branch to maintain a certain scale of liquidity reserves can provide a certain degree for the group's liquidity risk buffer, avoid branch customers suffer.

In view of the different regulatory standards for liquidity in the home countries of cross-border groups, the financial services authority will make appropriate adjustments to the liquidity standards based on the results of the statutory inspection and assessment, and grant the branches with conditional exemption, allowing them to meet the requirements for liquidity risk control with the support of other institutions within the group.

In the new liquidity standards, the financial services authority's requirements for the types and frequency of liquidity risk reports have been greatly increased. Reporting requirements that reveal the drivers of liquidity risk under the requirements of individual liquidity adequacy standards throughout the holding period; Collect standardized data according to regulations for horizontal comparison; With the increase of liquidity risk pressure, the frequency of reports should be appropriately increased. Financial institutions with multiple monetary liquidity risks are also required to provide monetary reports. In addition, cross-border groups are also required to provide multi-level reports reflecting liquidity transfer within companies and between groups.

In addition to the above provisions, the new liquidity supervision policy has also made corresponding provisions on how to implement the new liquidity supervision policy in stages during the transition period, and made appropriate adjustments to the new liquidity supervision policy according to the characteristics of small financial institutions and investment companies themselves.

The new liquidity regulation policy of financial institutions liquidity risk management puts forward higher requirements, although in the short term liquidity, profitability of the financial institutions and credit market has a certain negative influence, but in the long run, will help promote financial institutions to adjust and optimize the structure of total assets and liabilities and, further improve the liquidity risk management framework, improve the liquidity risk early warning mechanism, fundamentally improve the liquidity risk supervision system.

According to the regulation of the new policy, to maintain adequate liquidity resources, Banks will have to hold a certain number of high-quality government bonds, central bank reserves and multilateral development bank debt, liquidity to meet regulatory requirements, this will force the British financial institutions in the short term to further strengthen liquidity reserves, which may be some negative influence on itself and the financial markets: on the one hand, the new liquidity regulation policy will further promote the financial institution change of term structure of assets and liabilities do not match the status quo, to a certain extent, reduce the for-profit higher long-term loans in the proportion of total loans, which contributed to the financial institutions in the short term in the short term Profit pressure: as the new liquidity standard imposes stricter supervision on the liquidity of cross-border group branches, the move will further increase the liquidity and profit pressure of cross-border group branches. On the other hand, the strengthening of liquidity reserves by financial institutions will further aggravate the situation of tight credit market, making economic growth unable to get more financial support in the short term, which is not conducive to the rapid recovery of the British economy.

Although the new policy of strengthening liquidity supervision has caused some negative effects on British financial institutions in the short term, in the medium and long term, the new policy will bring three positive effects on British financial institutions and help to further enhance their international competitiveness:

First, the new policy will help financial institutions adjust and optimize the total amount and structure of their assets and liabilities. Under the guidance of the new policy, British financial institutions will gradually take the following measures to optimize their asset and liability structure: first, strengthen deposit marketing innovation and do a good job in stabilizing and increasing the deposit amount, with the focus on enhancing the stability and liquidity of deposits, especially core deposits, through active liabilities. Second, enhance the flexibility of asset allocation. We should properly control the growth rate of credit assets, improve the liquidity of loans, reduce the pressure of rapid loan growth on liquidity, actively adjust the orientation of loans, gradually increase the proportion of bills discounted, pledged loans, short-term loans and small loans, speed up the speed of loan turnover, and enhance the liquidity of credit assets. Third, optimize the structure of reserve assets and establish hierarchical liquidity reserve. While maintaining cash reserves in an appropriate way, we should rationally allocate short-term assets such as central bank deposits, central bank bills, short-term Treasury bonds, financial bonds and discounted bills as secondary preparations for liquidity supply, and improve our ability to prevent liquidity risks by timely meeting liquidity needs through sales or buybacks. Fourthly, it is helpful for cross-border groups to accelerate the establishment of a broader collaboration and linkage mechanism among branches, strengthen their self-hematopoietic function in terms of capital sources, and improve their balance of assets and liabilities and liquidity management capabilities.

Second, the new policy will help financial institutions further improve their liquidity risk management framework. New policy in liquidity risk management, flow risk stress tests, the establishment of emergency financing aspects put forward higher request, help to push the Banks improve the liquidity risk management framework, and the liquidity risk stress tests, on the basis of the results and emergency financing more rationally adjust the bank liquidity risk appetite, to improve its level of liquidity risk management.

Finally, the new policy helps to promote financial institutions to improve the liquidity risk warning mechanism. On the one hand, British financial institutions will further improve the early warning system of liquidity risk in the future, including predicting the warning situation of risk, exploring the source of risk and determining the risk situation, so as to minimize liquidity risk. On the other hand, the fsa's requirements on the types and frequency of liquidity risk reports have been greatly improved, which will promote the bank of England to further improve the regular liquidity analysis system, including liquidity demand analysis, liquidity source analysis and liquidity reserve design.

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