Bank of Israel : Update of Liquidity Risk Directive

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Within the framework of actions by the Banking Supervision Department to strengthen the resilience of the banking system, the Supervisor of Banks today issued an amendment to the Proper Conduct of a Banking Business Directive on managing liquidity risk, after consultation with the Advisory Committee on Banking Issues, and with the authorization of the Governor.

The amendment to the Directive is intended to strengthen and improve the management of liquidity risk at banking corporations. It is an intermediate stage ahead of the future adoption in Israel of the Basel III recommendations regarding liquidity. The revised Directive sharpens the need to hold a liquidity buffer in relation to projected liquidity requirements under given stress scenarios for one-month's time; it details the Banking Supervision Department's expectations for monitoring the risk on a group basis as well; establishes a requirement to examine the structure of capital sources vis-à-vis capital requirements over the long term, and it increases the quality requirements for managing liquidity risk.

Within the framework of the Directive, the Supervisor of Banks announced his intention to adopt the Basel III recommendations regarding liquidity, which were published at the beginning of the month.

In recent years, there has been considerable development in international regulation, in terms of managing liquidity risk, as part of the lessons learned from the global financial crisis. Among other things, the Basel Committee on Banking Supervision adopted, for the first time, uniform international standards for assessing liquidity risk, within the framework of the Basel III recommendations.

The Supervisor of Banks, David Zaken, said that implementing the revised Directive is an additional step toward the improvement of the stability of the banking system in Israel, and its ability to deal with unexpected occurrences.