The liquidity coverage ratio (LCR) is a Pillar 1 standard that applies to all firms in the same way. The CRD IV through articles 104 and 105 provides discretion for competent authorities to set additional Pillar 2 liquidity requirements. In Supervisory Statement 24/15, the PRA outlined an interim Pillar 2 approach and indicated that it would further review its assessment framework at a later date.

The PRA has now published Consultation Paper 21/16: Pillar 2 liquidity (CP21/16). In CP21/16 the PRA proposes a Statement of Policy on its approach to three aspects of Pillar 2 liquidity: intraday risk, debt payback and non-margined derivatives. The PRA also outlines the PRA’s Pillar 2 liquidity objectives and scope. In addition, it provides an early overview of planned future work to develop the Pillar 2 liquidity approach where the PRA is not yet setting out proposals. As such, CP21/16 is the first of two planned consultation papers on Pillar 2 liquidity.

The proposals set out in CP21/16 and the planned second consultation paper are intended to complement the Pillar 1 regime by addressing liquidity risks not captured, or not fully captured, under Pillar 1. Assessments under the Pillar 2 framework will be part of the PRA’s overall Liquidity Supervisory Review and Evaluation Process.

The deadline for comments on CP21/6 is 12 August 2016.

View Pillar 2 liquidity – CP21/6, 12 May 2016