21 Oct Basel III: Implementation and Management of Liquidity Risk in Mexico
By: Marcela Leal, Subject Matter Expert Mexico
Due to the financial crises of 2007, where some financial institutions were unable to meet their short and medium-term obligations due to outflow of funds in an untimely manner, the Basel Committee defined two new minimum standards and mandatory compliance focused on to liquidity risk management. These standards are the Liquidity Coverage Ratio (LCR) and the Net Stable Financing Ratio (NSFR), which are based on promoting short and long-term resistance to possible liquidity alterations.
As defined by Basel in its document “Basel III: Global Regulatory Framework to Strengthen Banks and Banking Systems”, these standards are designed to promote resilience over a 30-day period based on the circumstances of the 2007 global financial crisis and to encourage a more accurate assessment of liquidity risk for all on- and off-balance sheet items, respectively.
But, how the implementation of Basel and Liquidity Risk in Mexico has been and what have been its impacts on financial institutions?
The monitoring and surveillance of compliance with these standards is Banco de México’s responsibility, which, within the scope of its competence, jointly issued with the CNBV (December 2014) the general provisions on liquidity requirements, applicable to the calculation, elements and scenarios of the liquidity coverage ratio. Regarding the Net Stable Funding Coefficient, Banco de México is in the process of designing and approving the applicable provisions.