Prudential Regulation Authority Statement on Liquidity

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On August 28, Mark Carney, Governor of the Bank of England, confirmed that the Prudential Regulation Authority (PRA) Board will implement the June 2013 recommendation of the Financial Policy Committee (FPC) regarding the amount of liquidity held by banks and building societies.

Governor Carney said: “for major banks and building societies meeting the minimum 7% capital threshold, the Bank of England will reduce the level of required liquid asset holdings. The effect will be to lower total required holdings by £90 billion, once all eight major banks and building societies meet the capital threshold. That will help to underpin the supply of credit, since every pound currently held in liquid assets is a pound that could be lent to the real economy.”

The PRA will amend its current liquidity framework such that firms should hold highly liquid assets broadly equivalent to 80% of the ‘Liquidity Coverage Ratio’ (LCR) agreed by the Basel Committee on Banking Supervision (BCBS) in January 2013. The LCR requires internationally active banks to hold sufficient liquid assets to cover their expected net cash outflows under a 30-day liquidity stress scenario. News Release.