ECB steps up bank liquidity review
The ECB’s annual review of risks faced by banks will pay more attention to the management of liquid funds, including the potential for a higher bar on key metrics such as liquidity coverage ratio.
The bankruptcy of Credit Suisse Group AG in March and US banks, including Silicon Valley Bank, has called into question how banks are truly prepared to put pressure on deposits and the effectiveness of the metrics investors and regulators use to gauge their ability to withstand a crisis.
While liquidity is an important part of banking supervision, observers have recently focused on more pressing issues such as low rates bank capital and credit risk. The ECB began forcing banks to take a closer look at liquidity in late 2021 as high inflation signaled rising funding costs. The bankruptcy of US banks has increased the scrutiny.
Sources said the ECB’s annual review of risks faced by banks will likely have the first results by the summer. Officials said they will divide banks into different groups based on how vulnerable their business model is to fund outflows.