Pillar 2 Liquidity

We welcome this consultation, and the PRA’s engagement with BSA members on this subject at a meeting on 22 June. We appreciate that the Pillar 2 issues are being spread across 2 CPs. We agree that final decisions on the whole package should be taken in the round, after the second CP.

The BSA supports robust and effective liquidity requirements, whether under Pillar 1 or Pillar 2, to ensure the safety and soundness of our members, and thereby the protection of their customers. As building societies’ core business involves a high degree of maturity transformation (stable short term savings deployed to fund long term mortgages), our members have always taken liquidity extremely seriously, and through and since the banking crisis have maintained high levels of liquidity. Nevertheless, liquidity does involve an opportunity cost, as resources tied up in liquidity cannot be used for lending to the real economy.

So it is important to consider the aggregate impact, and internal consistency, of the contents of both CPs, as PRA intend – and PRA should be especially vigilant for instances of inadvertent double-counting. Although currently building societies, having complied with the pre LCR FSA/PRA liquidity regime, are massively liquid when measured on an LCR basis, correct calibration of Pillar 2, and avoiding potential double counting, still matter for the future.

We therefore support the PRA’s plan to assess the aggregate system-wide calibration described in paragraphs 5.16 to 5.18, and the importance of cost-benefit analysis (paragraphs 5.19-5.21), both as promised for the second CP.

Read the full response here.