LONDON: The Bank of England on Tuesday set out a proposed new framework for banks’ liquidity that aims to improve their ability to monetise liquid assets in stress events.
The BoE’s prudential arm said the changes, put forward in a three-month consultation process that kicks off on Tuesday, build on lessons learned from the collapse of Silicon Valley Bank and Credit Suisse in March 2023.
“We’ve focused the changes not on increasing the amount of liquid assets banks have to hold but instead on making sure that those assets do what they say on the tin and really are usable in the event of a run,” said Sam Woods, CEO of the Prudential Regulation Authority.
The proposals include requiring banks to conduct internal stress tests on how they would react to rapid outflows within a week and seek to streamline reporting and encourage firms to be ready to use central bank instruments in stress.