Determining the need for specific liquidity requirements
Competent authorities should decide on the necessity of specific supervisory liquidity requirements for the institution based on their supervisory judgement and following dialogue with the institution, taking into account the following:
the institution’s business model and strategy and the supervisory assessment of them;
information from the institution’s ILAAP; and
the supervisory assessment of risks to liquidity and funding, including the assessment of inherent liquidity risk, inherent funding risk and liquidity and funding risk management and controls, taking into account the possibility that risks and vulnerabilities identified may exacerbate each other.
When competent authorities conclude that specific liquidity requirements are needed to address liquidity and funding concerns, they should decide on the application of quantitative requirements, as covered in this title, and/or on the application of qualitative requirements, as covered in Title 10.
When setting structural, long-term supervisory requirements, competent authorities should consider the need for additional short/medium-term requirements as an interim solution to mitigate the risks that persist while the structural requirements produce the desired effects.
Where competent authorities conclude that there is a high risk that the institution’s cost of funding will increase unacceptably, they should consider measures, including setting additional own funds requirements (as covered in Title 7) to compensate for the increased P&L impact if the institution cannot pass the increased costs of funding to its customers, or requesting changes to the funding structure, to mitigate the funding-cost risk.