Guidance Note: Liquidity Management and Reporting (May 2007)

Summary

This is a JFSC guidance note explaining minimum standards for liquidity risk management and reporting that apply to Jersey incorporated deposit takers (banks). It sets out expectations for liquidity management policies (LMPs), daily monitoring, mismatch limits, behavioural adjustments to deposits and assets, and liquidity contingency plans (LCPs). It supplements the Codes of Practice for Deposit-taking, which refer firms to the Basel Committee's paper on sound liquidity practices.

• Liquidity management policy: Senior management must prepare, and the board (or senior manager of a branch) must approve, an LMP covering funding sources, concentration risk, marketable assets, behavioural adjustments and inter-group relationships; it must be reviewed at least annually.
• Daily monitoring: Each Jersey incorporated deposit taker must monitor liquidity daily using the JFSC's stated methodology and calculate a daily liquidity requirement.
• Mismatch limits: Standard cumulative mismatch limits apply: 0% for sight to less than 8 days and minus 5% for sight to less than 1 month, measured against total deposit liabilities after behavioural adjustments.
• Breach reporting: Any breach of the mismatch limits must be reported to the JFSC immediately, with an explanation of the cause, and remedied promptly.
• Behavioural adjustments: Firms wishing to apply behavioural adjustments to contractual maturities must submit proposals to the JFSC (covering deposit profile, product profile and behaviour analysis); only agreed adjustments may be reflected in the LMP, and material changes in deposit/asset profile must be notified to the JFSC immediately.
• Liquidity contingency plan: Each bank must maintain an LCP (within or separate from the LMP) covering crisis definition, early warning indicators, actions, roles, communication (including with the JFSC) and scenario testing; a copy must be provided to the JFSC.

Branches of overseas-incorporated banks report liquidity to the JFSC on a contractual basis only, without behavioural adjustments. Reporting of liquidity risk to the JFSC will be incorporated into Basel II reporting from Q1 2008.

Key obligations

• Prepare, maintain and have board (or senior manager, for branches) approval of a liquidity management policy (LMP) covering funding sources, concentration, marketable assets and behavioural adjustments
• Review the LMP at least annually and more frequently if circumstances require
• Monitor liquidity daily using the JFSC's stated methodology and calculate a daily liquidity requirement
• Comply with standard cumulative mismatch limits (0% for sight to less than 8 days; minus 5% for sight to less than 1 month) from 1 January 2008
• Immediately report to the JFSC any instance where a mismatch limit is breached, with an explanation, and remedy breaches promptly
• Obtain JFSC agreement before applying any behavioural adjustments to deposits or assets, supported by deposit profile, product profile and behaviour analysis
• Notify the JFSC immediately if the bank's deposit or asset profile undergoes material change
• Maintain a liquidity contingency plan (LCP) and provide a copy to the JFSC if it is separate from the LMP
• Approach the JFSC with proposals for behavioural adjustments before the 1 January 2008 mismatch limit deadline if seeking adjusted treatment

Applies to

Jersey incorporated banks, Jersey incorporated deposit takers, branches of overseas-incorporated banks

Deadlines

• 1/1/2008: Deadline by which all Jersey incorporated banks must abide by the standard mismatch limits for time periods out to one month
• Q1 2008: Changes to liquidity risk reporting to the JFSC will be incorporated within reporting required under Basel II
• before 1/1/2008: Affected banks should approach the JFSC with behavioural adjustment proposals ahead of the mismatch limit deadline

Related documents

• Guidance Note: Basel III: Liquidity Management and Reporting for Jersey Incorporated Deposit Takers (June 2018) replaces this document