BOJ introduces new liquidity standards for banking sector

The Bank of Jamaica (BOJ) has imposed new liquidity standards for the island’s banking sector, which will be phased in over a one-year period beginning this month.

The standard aims to ensure that a financial institution has an adequate stock of unencumbered high-quality liquid assets (HQLAs), consisting of cash or assets that can be converted into cash at little or no loss of value in private markets to meet its liquidity needs for a 30-calendar day liquidity stress scenario.

The new standards require that banks and other deposit-taking institutions have a 100 per cent Liquidity Coverage Ratio (LCR), which has the primary objective of supporting and improving the short-term resilience of the liquidity profile of financial institutions.

This is attained by ensuring that these institutions have sufficient HQLAs to survive a significant stricture to funding sources lasting 30 calendar days. Ultimately, the LCR is designed to improve the deposit-taking sector’s ability to survive the shocks arising from financial and economic stress, thereby reducing spill-over risks from the financial sector to the real economy.