FSA’s liquidity regime to shift demand in sterling SSAs

The UK’s Financial Services Authority has brushed aside industry concerns about its stringent new liquidity regime, publishing a final policy this week that retains the most controversial features.

  • 09 Oct 2009
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Firms subject to the regime will still be required to be "self-sufficient" on a branch rather than firm-wide basis, and eligible liquid assets remain restricted to high quality government bonds, central bank reserves and some supranational bonds.

The FSA estimates that firms could need to increase their holdings of such liquid assets by £110bn from the present £280bn, depending on the calibration of the quantitative guidance and their continued reliance on short term funding, costing the industry as much as £2.2bn once the regime is fully phased in.

Although well flagged, the move will increase demand within the UK for these bonds — in sterling, at least — while reducing that for unilateral development banks such as KfW and for government guaranteed bonds.

"We expect the UK banks primarily to use Gilts to fulfil their new liquidity requirements," said RBS credit strategists Frank Will and Sophia Kwon this week. "However, the higher yield pick-up offered by supranationals compared to Gilts will probably increase demand for sterling bonds issued by the likes of EIB, World Bank or Nordic Investment Bank. We see therefore a good chance that supranationals will outperform their agency peers such as KfW, Bank Nederlandse Gemeenten, and GGBs over the coming months."

In a worst case outcome, where firms do not reduce their reliance on short term funding at all and are subject to the full stresses under the individual liquidity adequacy assessment (ILAA) given to each firm, these figures would rise to £620m and £9.2bn. Conversely, a steep reduction in short funding or calibrating to a lower stress level than suggested by the ILAA would result in no increase to the required buffer.

Under the ILAA, firms will need to be able to meet net outflows for two weeks of name-specific stress — including an inability to refinance all but the most secure wholesale funding and a "sizeable" outflow of retail funds — and three months of market-wide stress. The proportion of the resultant medium term outflows institutions will in practice be required to cover with liquid assets will be calibrated according to the FSA’s assessment of the firms’ risk management and stress testing procedures.

The FSA has taken on board some of the feedback it received during its consultation, removing around 200 small firms from the scope of the regime, reducing reporting requirements for some firms, and extending the transition period, which for the quantitative aspects is expected to last "many years", depending on the macro-economic picture.

The FSA has also added Australia to the list of countries whose government bonds are eligible.

Moreover, the FSA stated that its "preferred option" is to allow branches of foreign firms to operate under a modification of the self-sufficiency requirement — subject to agreement with the firm’s home regulator and the determination that the home regime is "broadly equivalent" — so that they do not have to hold an operational liquidity reserve at the branch level.

The regulator said it expects that "in practice, most branches of credit institutions operating within the UK would receive modifications", but this will depend on how quickly and how extensively other countries and the European Union act to tighten their own liquidity requirements.

The FSA has also eased the reporting requirements, allowing firms with a balance sheet of under £1bn to use the simplified reporting regime even if they are operating under the individualised liquidity regime (ILAS), and giving firms longer to submit their data.

The regulator is standing firm on the operational aspects of its transition plan, requiring UK firms to have their systems and controls in place and working by December 1 this year.

Branches of foreign firms that operate under a global liquidity concession will have until November 2010 to comply. On the quantitative side, sterling stock banks and building societies operating under ILAS will transition between December 2009 and June 2010, while simplified building societies and mismatch banks will transition until October 2010. All other firms, including branches of foreign banks, will switch on in November 2010.

Firms operating under the simplified ILAS will have three years to build up their liquid assets buffer.

Chris Dammers

  • 09 Oct 2009

Bookrunners of Global Covered Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 UBS 11,498.67 72 6.01%
2 HSBC 10,710.61 60 5.60%
3 BNP Paribas 9,831.12 47 5.14%
4 Credit Agricole CIB 9,513.58 45 4.97%
5 Commerzbank Group 9,052.55 54 4.73%

Bookrunners of Global FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 Oct 2016
1 JPMorgan 83,632.79 365 6.90%
2 Citi 78,369.17 439 6.46%
3 Morgan Stanley 71,293.89 310 5.88%
4 Goldman Sachs 68,728.80 354 5.67%
5 Bank of America Merrill Lynch 67,654.98 332 5.58%

Bookrunners of Dollar Denominated FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 25 Oct 2016
1 JPMorgan 66,103.08 263 10.70%
2 Citi 63,508.84 343 10.28%
3 Bank of America Merrill Lynch 56,965.71 282 9.22%
4 Morgan Stanley 50,049.01 235 8.10%
5 Wells Fargo Securities 47,073.69 227 7.62%

Bookrunners of Euro Denominated Covered Bond Above €500m

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Credit Agricole CIB 8,094.29 29 8.17%
2 BNP Paribas 7,155.53 27 7.22%
3 UBS 6,774.88 24 6.84%
4 UniCredit 5,793.45 23 5.85%
5 LBBW 5,728.28 22 5.78%

Global FIG Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 Morgan Stanley 365.83 497 7.62%
2 JPMorgan 332.66 618 6.92%
3 Bank of America Merrill Lynch 299.89 590 6.24%
4 Goldman Sachs 276.71 375 5.76%
5 Citi 264.54 592 5.51%

Bookrunners of European Subordinated FIG

Rank Lead Manager Amount €m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 6,662.83 23 9.67%
2 UBS 6,524.55 26 9.47%
3 HSBC 6,275.95 20 9.11%
4 Barclays 5,522.64 16 8.02%
5 Citi 4,577.05 23 6.65%