SRB Publishes Liquidity in Resolution Data Guidance
SRB Publishes Operational Guidance for Banks on the Measurement and Reporting of the Liquidity Situation in Resolution
Measurement and Reporting of the Liquidity Situation
In the previous resolution cycles, banks had to demonstrate their capabilities in fulfilling the Expectation for Banks’ (EfB) principles on the liquidity and funding in resolution (principle 3.1) and on the identification and mobilisation of collateral in resolution aspects (principle 3.3). During the 2023 resolution planning cycle, banks must further demonstrate their capabilities to measure and report their liquidity situation in resolution (principle 3.2).
The SRB has already published two operational guides in relation to the principles 3.1 and 3.3. This third guidance on the measurement and reporting of the liquidity situation in resolution aims to guide banks towards developing the ability to measure and report their liquidity position at short notice and with a high level of frequency. It is outlined in detail how banks are expected to demonstrate their resolvability by developing the necessary policies, processes, validation procedures and MIS capabilities to achieve full resolvability by 2024.
Main objectives and requirements
The operational guidance was published on June 16th 2023, containing the following three main objectives:
- First, the banks’ internal frameworks, governance, and management-information systems (MIS) need to meet the data expectations that are set out by the SRB. Banks must have the ability to forecast their net liquidity position across time periods and at short notice.
- Second, banks under the direct remit of both the SRB and the ECB are expected to have developed the capabilities to report a predefined set of data points on their liquidity situation. This shall be assessed via the Joint Liquidity Template, which must be submitted according to the prevailing market conditions at the time of reporting.
- Lastly, banks must put in place remedial actions to mitigate any deficiencies in their capabilities to provide these data points at the requested level of consolidation and at a high level of frequency (intra-day).
To avoid an unnecessary increase in banks’ reporting burden, the SRB and ECB agreed to cooperate closely on the topic of measurement and reporting of liquidity.
Deliverables
To ensure that the banks comply with the requirements, they must deliver qualitative and quantitative analyses as well as a self-assessment for the 2023 Resolution Planning Cycle.
The qualitative analysis consists of a note on capabilities to measure and report the liquidity situation in resolution (“deliverable 1”). It includes the integration of resolution aspects into the “business-as-usual” liquidity risk framework. Banks should describe how the internal processes and governance related to the measurement and monitoring of liquidity are expected to change in a resolution situation. Moreover, the data quality for the requested data points in the Joint Liquidity Template at the required level of consolidation must be ensured. Banks were expected to submit this qualitative note by the end of July 2023.
The Joint Liquidity Template (“deliverable 2a”) encompasses the minimum set of data points which help the banks in estimating their net liquidity position in resolution. Banks are expected to quantify their liquidity situation within the predefined format on the level of individual KLEs and on the resolution group level. The SRB and the ECB have collectively decided to conduct a joint data collection exercise which will leverage on previous liquidity reporting requirements of the ECB. The data reporting exercise will run for five consecutive business days, and the template must be populated as per the defined reporting scope. The banks are expected to submit the Joint Liquidity Template once every day during the data reporting exercise. This high level of frequency reporting could demonstrate a significant challenge for the banks involved. It should also be noted that the national resolution authorities (NRA) may have their own additional requirements for national institutions regarding the set of data points to be reported.
Ultimately, by November 2023, banks must provide a self-assessment to complement the information provided in the template (“deliverable 2b”). Banks must carry out an analysis of any obstacles observed when reporting the Joint Liquidity Template. Banks then should further provide information on any necessary updates on remedial actions defined under the qualitative analysis and any additional actions necessary for the banks’ general work program.
Conclusion
The three operational guidelines on liquidity and funding in resolution aim to achieve full resolvability of all banks under the remit of the SRB. With the third guidance concerning liquidity and funding in resolution, banks are now required to test and demonstrate their measurement and reporting capabilities of their liquidity situation during and after resolution. To meet the requirements of the SRB, banks will have to demonstrate that they can maintain a high reporting frequency and at the same time meet the data quality requirements.
More information: SRB Press release
