Yesterday, the Committee of European Banking Supervisors (CEBS) released its “Guidelines on Liquidity Buffers & Survival Periods,” which are the result of a four-month public consultation period and public hearing. These guidelines build on CEBS’s “Recommendations on Liquidity Risk Management,” which discussed the optimal size and composition of liquidity buffers to allow banks to withstand liquidity stress for a period of at least one month without changing their business models. Specifically, the guidelines call for banks to hold buffers of cash and highly liquid assets in the private markets to allow them to meet their payment obligations for one week and a broader set of instruments to last at least one month.
The report highlights six guidelines which were developed by reviewing a range of liquidity buffer approaches and views from a broad range of market participants. The CEBS provided draft guideline recommendations in June and a public hearing was held in September 2009. In drafting yesterday's guidelines, the CEBS considered feedback received and sought to address the primary issues raised by market participants.
Giovanni Carosio, Chairman of CEBS, stated that “[t]hese guidelines address the flaws in the liquidity risk management practices revealed during the crisis and are expected to represent a significant enhancement of institutions’ liquidity.”