Federal Reserve Bank of San Francisco

Prudential Liquidity Standards in Asia

Author(s): R. Ashle Baxter

March 2011

Asia Focus

Since the outbreak of the global financial crisis, regulators have increased their focus on the ability of banks to measure and manage liquidity risk. In December 2009, the Basel Committee on Banking Supervision (the Basel Committee) identified ineffective liquidity management as a key characteristic of the crisis and highlighted the lack of attention that liquidity risk received relative to other risks prior to the crisis. Recognizing the key role of illiquidity in the crisis, the Basel Committee included two global minimum liquidity standards as part of the recently announced Basel III supervisory framework to be implemented over the next seven years. Notably, regulators in a number of Asian economies have had prudential liquidity standards in place for many years. This Asia Focus report defines liquidity and liquidity risk, examines some common prudential liquidity standards in key Asian economies, and briefly considers the potential impact of the proposed Basel III standards on global liquidity risk management.

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