Basel III Liquidity Framework: Basel Committee Publishes Consultative Document Proposing Disclosure Requirements for the Liquidity Coverage Ratio

Sullivan & Cromwell LLP - July 24, 2013

On July 19, 2013, the Basel Committee on Banking Supervision (the “Basel Committee”) published for comment a consultative document (the “Proposal”) which outlines new disclosure requirements with respect to the Basel III Liquidity Coverage Ratio (the “LCR”). The proposed disclosure framework consists of three main components:

  • quantitative disclosure of a bank’s actual LCR and various components, such as the pool of high quality liquid assets (“HQLA”) and cash inflows and outflows, used to calculate the LCR, presented in a common template and generally calculated as “simple averages of daily observations over the previous quarter”;
  • a qualitative discussion of a bank’s actual reported LCR and its components, including, for example, the main drivers of its LCR results and the composition of the HQLA pool, in order to enable market participants to better understand the results and quantitative data; and
  • additional, discretionary disclosure to provide market participants with a more comprehensive view of a bank’s liquidity risk position and information relevant to the bank’s particular business model that is not otherwise captured by the LCR.

The Proposal comes in the wake of the Basel Committee’s purportedly final revisions to the LCR framework in January 2013 and is meant to improve the transparency of regulatory liquidity requirements and enhance market discipline.

Comments on the Proposal are due by October 14, 2013.