Liquidity Advisory Group Practical implementation of the new liquidity regime for major groups

1.

3. The flight path We will publish early next year more details about the speed and manner in which the regime will be tightened quantitatively Meetings with major firms are starting from 19 October to exchange information on possible calibrations Bilateral discussions with all full ILAS firms will take place in due course to agree a ‘flight path’ Further work on the impact of the regime and monitoring of the effect of any tightening will continue over the next few years “Back-stop” Individual Liquidity Guidance (BILG) will be provided to take effect in Q1 2010 – this will not ‘tighten’ the regime. It is intended to prevent any deterioration and put in place common metrics for us and firms to monitor themselves according to the new regime.

4. Actions for groups Groups will need to give early attention to the waivers and modifications appropriate to their structure: Apply by 15 December 2009 for intra-group modifications Produce LRP / FSA047, FSA048 submissions in support of the modification applications Put in place committed facilities or similar where parental support is to be relied upon (note that it is unlikely that we will permit reliance on foreign subsidiaries and, in cases where the firm has material levels of retail deposits, on non UK parents to support the UK group) Start reporting in material currencies separately, when ready, to aid June 2010 multi currency switch-on date and (less frequently) for solo / UK group entities separately Modification decisions will dictate which entities will need to report on what basis and with what frequency

5. Actions for groups As part of complying with the ILAS regime, senior management will need to review and approve: the contingency funding plan (by December 2009) an overall liquidity risk appetite on which internal limits and controls are based (by June 2010) the ILAA (by June 2010)

6. Integration with normal supervision Arrow reviews and Close & Continuous meetings will be coordinated with liquidity work You should expect regular C&C meetings on liquidity There will be more of a focus on changes to business models as firms restructure and become less reliant on Government support Liquidity review work will be one module which links with regular capital stress testing and business model review work It will be more intrusive ( ‘deep dive’ reviews): typically be for 4 to 6 weeks on site in teams of 3 to 4 specialists expect the FSA to attend senior risk committee meetings we will want to observe operations and real-time management information being used Other than senior level meetings, we want open access to staff within the treasury and related risk management functions rather than set meetings