We are pleased to offer brief supportive comments on the PRA’s consultation paper on its approach to supervising liquidity and funding risks.
The PRA is proposing that there should be no order in which firms use the BoE's liquidity facilities, including the discount window facility, or draw down their own liquid asset buffers to meet a liquidity need. Firms would use their own judgment in applying for, and using, the BoE’s liquidity facilities. These proposals reflects the correct use of BoE facilities as set out in the market operations guide. We agree with the PRA’s assertion that firms are best placed to evaluate the relative costs and benefits of different sources of liquidity, as well as the effect on the firm’s funding stability. Therefore these proposals seem sensible and proportionate to us.
The proposals also reiterate the PRA expectation that where firms consider central bank liquidity facilities to be part of their liquidity risk management strategy, they must include this as part of the credible recovery options outlined in their recovery plans. This reflects expectations set out in the PRA supervisory statement on recovery planning, and again seems a sensible measure.
We support the aim of the proposals and the consequent replacement of paragraph 5.2 of the supervisory statement on supervising liquidity and funding risks. We also agree with the PRA’s assertion that firms would not incur material costs when implementing the changes.