European Central Bank Scrutinizes Bank Liquidity
By Garvit Vyas , 25 May, 2023
The European central bank is focusing on scrutinizing lenders' liquidity reserves and may lay down strict guidelines for individual firms by the end of 2023. The bank's annual review of the risks faced by the banks will pay mindful attention to the management of liquid funds, including the potential for higher standards on critical metrics like the liquidity coverage ratio.
The collapse of Credit Suisse in March 2023 and Silicon Valley Bank in the United States has raised questions on how truly prepared banks are to take the strain on deposits; the effectiveness of the metrics investor and using regulators to measure their capacity to withstand a crisis.
Liquidity is a part of banking supervision; therefore, watchdogs are more focused on pressing bank capital and credit risk issues. The European Central Bank started to review liquidity more closely in the latter part of 2021 due to higher inflation because of rising funding costs. Also, the collapse of the US lenders has heightened the scrutiny.
According to Yahoo Finance, the European Central Bank will initially receive the results of its annual review of the risks banks face over the summer of 2023. Later in 2023, the officials will split the banks into different groups, depending on how dangerous their business models are to fund outflows. Deposits by wealthy clients are more likely to be focused because individual withdrawals quickly drain a bank's liquidity reserves, one of the reasons which led to the crisis at Credit Suisse. Swiss regulators declared that Credit Suisse's liquidity would be acceptable just before the emergency weekend rescue done by competitor United Bank of Switzerland (UBS).
According to data from the European Banking Authority, the average ratio for European banks stood at 165 percent in the fourth quarter of 2022, above 100 percent at a minimum. The individual lenders publish their own figures but do not add any additional requirements on top of the minimum.
Staying Liquid
Latest News
The United States went through a decline in oil and gas drilling activities in 2024. Since the beginning of the year, the United States has faced many challenges in keeping up with the oil drilling process. Recently, the surveys showed that the total…
Electrification in the energy sector will ramp up in the United States in 2024. The nation aims to set up data centers and increase the production of electric vehicles, citing the green energy transition. Both activities demand a high electricity…
Renewables are in high demand in the energy market in 2024. It is due to a clean energy transition that requires a constant flow of renewables in the energy market. The green transformation to combat climate change brings about several environmental…
Companies are making significant moves towards the clean energy transition in various ways. In order to reduce carbon emissions, certain companies are investing in several rescue methods in 2024. Renewables production is growing over time as the…
Amazon is one of the leading global e-commerce platforms for consumers. The brand boosts its online shopping experience for users in multiple ways. Surveys show that Amazon regulates several business solutions to increase its products and services…
Analyst