The Bank of Israel is tightening its regulations for preserving commercial banks' stability. Beginning in 2010, regulations will mandate minimum liquidity levels, which will be called "liquidity adequacy levels".
The new regulations are part of the lessons drawn by the world's central banks from the global financial crisis. Supervisor of Banks Rony Hizkiyahu, who considers liquidity adequacy as a key goal, is personally heading the staff work on the new regulations.
There is no international model for liquidity adequacy, and central banks are defining terms and rules. Liquidity adequacy will not only reflect banks' minimum amount of capital, which is reflected by capital adequacy ratios, but also the banks' capital liquidity measured in days. The new regulations reflect the realization that worst-case scenarios can actually happen.
A Banking Supervision Department official said, "We saw in the crisis that liquid banks with high capital adequacy ratios became illiquid and collapsed."
The Bank of Israel believes that banks' liquidity is not a fixed parameter, for a month-long period for example, but a variable based on a bank's needs, the financial climate, the breakdown of a bank's risk assets and their amount. Under certain circumstances, a bank may have to keep three months of liquidity in order to meet its needs, but only six weeks liquidity at other times.
Published by Globes [online], Israel business news - www.globes-online.com - on January 18, 2009
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