Pillar 2 liquidity

12 October 2018: The PRA confirms that it is using its new individual risk methodologies as set out in Statement of Policy ‘Pillar 2 liquidity’ in liquidity reviews. They are being applied at the current glide path factor.

We have previously stated our intention to set out proposals on the overall calibration of the liquidity framework in 2018. However, we have taken the decision to postpone finalisation of our proposals in order to conduct further analysis on the appropriate level of liquidity guidance. This includes the potential for some recognition in the Pillar 2 liquidity framework of the ability to draw on Bank of England liquidity facilities, where firms have access arrangements and appropriate collateral in place.

Update 17 June 2019

This Statement of Policy (SoP) was updated following PS13/19 ‘Pillar 2 liquidity: Updates to the framework’, and takes effect from Monday 1 July 2019.

This statement of policy (SoP) is relevant to all UK banks, building societies and PRA-designated investment firms, referred to collectively as ‘firms’.

• Chapter 2 details the PRA’s approach to the level of application of Pillar 2 liquidity guidance.
• Chapter 3 details the PRA’s approach to assessing cashflow mismatch risk.
• Chapter 4 details the PRA’s approach to assessing franchise viability risks.
• Chapter 5 details the PRA’s approach to assessing intraday liquidity risks.
• Chapter 6 details the PRA’s approach to assessing other Pillar 2 liquidity risks.

The Pillar 2 framework covers risks not captured, or not fully captured, in Pillar 1.

In publishing its approach to Pillar 2 liquidity (‘Pillar 2’), the PRA seeks to help firms understand how it assesses liquidity risks, thereby encouraging them to develop better approaches to reduce or manage these risks.