On Thursday, February 8, the Bank of Russia published a report for public consultation “New national short-term liquidity standard” (.pdf). In it, the regulator presented proposals regarding the format and timing of the introduction of a new national short-term liquidity standard (SLR), which will apply to systemically important credit institutions (SZKO, currently there are 13 of them).
The need for a new standard arose because the stress scenario in the current Basel standard suggests that banks could survive a financial crisis affecting one or more jurisdictions without government or regulatory assistance. However, according to the Central Bank, taking into account the specifics of the Russian financial system, this is unattainable, since “in a crisis situation, Russian banks cannot count on market refinancing.”
Therefore, the Bank of Russia proposes to change the methodology for calculating the standard (formula, composition of highly liquid assets and parameters for assessing expected outflows and inflows of funds) taking into account Russian specifics. It clarifies the stress scenarios to a “more realistic level”, and they are calibrated in different ways: in some parameters towards mitigation, in some cases towards tightening. The Central Bank clarified stress scenarios for banks based on the results of an analysis of the situation in the period 2016–2022.
According to the document, the new standard (preliminary name N8) will undergo detailed study and discussion with the market in 2024. Changes to current legislation will also be required. The new standard is expected to enter into force and become fully operational in 2026.
It is worth noting that from March 2024, the current short-term liquidity ratio (NKL, N26 (N27)) is gradually resuming its effect after the cancellation of the relaxations. Starting next month, banks will have to fulfill it at a level of at least 40%. In the document, the Central Bank indicates that the “Basel” NCL may remain primarily for internationally active banks; whether it will be abolished for the rest is still unclear.
At the same time, it is proposed to set the minimum acceptable value of the new standard at 80% instead of 100% for the Basel standard. At the same time, its compliance in the range of 80–100% will not be considered a violation and will not threaten banks with increased contributions to the deposit insurance fund or the banking sector fund in the future (its creation is being discussed in the Central Bank).
Compliance with the standard at a level above 100% ensures the ability of SZKO to fulfill its obligations to clients over a 30-day horizon in a crisis, the document explains. “Since the introduction of the NKL (in 2016— “Kommersant”) Russian banks experienced a shortage of highly liquid assets that met Basel requirements, including due to the limited supply of such assets in the financial system,” the report says.
The reduction of such assets in the structure of banks’ balance sheets in favor of the growth of loan portfolios and short-term funds in liabilities had a positive impact on the profitability of banks, but worsened resistance to stress, the Central Bank’s report explains. This leads to increased financial stability risks. At the same time, the easing “demotivates banks and does not contribute to correcting the current situation.” According to the Central Bank, the proposed expansion of the composition of highly liquid assets in the new standard will lead to their growth by 1.6 trillion rubles, to 9.5 trillion rubles. Based on the results of changes in the standard, its actual value in recalculation improves for banks with a significant share of funds from legal entities and low dependence on government funds.
How the Central Bank adjusts standards to national characteristics – in the material “Kommersant” “Liquidity in Russian”.