Should Banks Hold More Cash Reserves for Emergencies?
Official title: Internal Liquidity Adequacy Assessment Process (ILAAP) discussion paper
Canada's banking regulator wants to know how banks should prove they have enough cash on hand to survive a crisis. Right now, there's no standard process for banks to show they can handle sudden withdrawals or market shocks. This consultation asks whether a formal 'liquidity adequacy assessment' should be required.
Why This Matters
Remember the 2023 banking turmoil when some banks collapsed? This is about preventing that here. If your bank doesn't have enough cash reserves, your deposits could be at risk during a crisis. Stronger rules could mean safer banks—but might also mean higher fees or tighter lending.
What Could Change
Banks may be required to submit formal liquidity assessments to regulators. New rules could mandate larger cash buffers for specific risks like foreign currency exposure or payment system obligations. This could affect how much banks can lend and what they charge for services.
Key Issues
- How should the four Basel principles for capital adequacy apply to liquidity in Canada?
- How should banks account for 'double-duty risk' when the same assets are used for daily payments and emergency reserves?
- How should banks assess their ability to access foreign currencies during a crisis?
- How should banks measure risks from pledged assets and collateral availability?
How to Participate
- Review the ILAAP discussion paper (PDF) to understand the proposed liquidity assessment framework.
- Submit your feedback to consultations@osfi-bsif.gc.ca. The consultation period has ended.