On 12 May 2016, the PRA published Consultation Paper 21/16: Pillar 2 liquidity (CP21/16). In CP21/16 the PRA proposed a draft statement of policy on its approach to three aspects of Pillar 2 liquidity: intraday risk, debt payback and non-margined derivatives. Our blog can be found here.

The PRA has now released a statement summarising the feedback it has received on the draft statement of policy. The feedback does not provide final policy proposals, as noted in CP21/16 the PRA will publish a second consultation paper covering a range of risks outlined in the consultation paper (mid-2017 on current PRA plans).

However, the statement makes a number of points including those relating to:

  • level of application. Some respondents to the consultation suggested that Pillar 2 requirements should be set at the lowest relevant level of application. If consolidated requirements are set, respondents asked that high quality liquid assets held against add-ons at lower levels of application and which are considered trapped, be taken into account when sizing the consolidated requirement;
  • disclosure of Pillar 2 requirements. Respondents broadly agreed with the proposed approach to disclosure of Pillar 2 requirements;
  • debt buyback risk. Most respondents welcomed the PRA’s approach to assessing debt buyback risk, in particular the proposal to take account of the need to maintain debt eligible for minimum requirement for own funds and eligible liabilities. Some respondents noted that they have a clear policy not to buyback debt even in a stress situation;
  • early termination of non-margined derivatives. Some respondents questioned the need to set add-ons for potential early termination of non-margined derivatives given the declining materiality of the risk with the move to margining and central clearing of derivatives; and
  • intraday liquidity. Respondents had mixed views on the proposed use of the mean of daily maximum net debits to size intraday liquidity needs.

View PRA feedback on Pillar 2 liquidity consultation, 18 October 2016