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On 17 March 2026, the Prudential Regulation Authority (PRA) published Consultation Paper 5/26 proposing targeted amendments to modernise the prudential liquidity framework for UK banks, building societies, and designated investment firms. The PRA's proposals respond to structural vulnerabilities revealed by the March 2023 banking turmoil, when Silicon Valley Bank and Credit Suisse experienced significant deposit outflows within days—far exceeding assumptions embedded in the current Liquidity Coverage Ratio (LCR) framework. The proposals address five key areas: assessing the composition and monetisation risk of liquidity resources; removing exemptions for Level 1 Assets from operational monetisation testing; clarifying the role of central bank facilities within prudential liquidity management; monitoring pre-positioned collateral with central banks; and making consistency clarifications across the Internal Liquidity Adequacy Assessment (ILAA) rules. The PRA proposes requiring firms to design stress scenarios reflecting sudden, severe outflows peaking within the initial days of stress, assess frictions to monetising assets (including accounting treatment impacts), and replace the existing "marketable asset risk" framework with broader "monetisation risk" assessment. Critically, the proposals clarify that firms may include drawings from regularly available central bank facilities—offered at published terms—within their Overall Liquidity Adequacy Rule (OLAR) and internal stress testing, provided they maintain operational readiness to access such facilities. The PRA estimates direct one-off compliance costs of approximately £7.2 million across all firms, with ongoing annual costs of roughly £0.6 million. The framework is designed proportionately, with flexibility for application across diverse business models and firm sizes, including Small Domestic Deposit Takers. The consultation closes on 17 June 2026. Responses should be submitted to CP5_26@bankofengland.co.uk. The PRA proposes phased implementation, with certain requirements effective immediately upon final rules publication and remaining requirements taking effect 12 months thereafter.

On March 17, 2026, the Prudential Regulation Authority (PRA) issued a consultation (CP5/26) on its proposals to modernise the existing liquidity policy framework, aimed at ensuring banks can monetise liquid assets quickly in a fast-paced stress event. The PRA’s CP5/16 includes the following proposals: Requiring firms to assess the composition of liquidity resources and monetisation risk by: Assessing the adequacy of the composition of liquidity resources as part of overall liquidity adequacy rule (OLAR). Preparing a stress scenario to assess the firm’s ability to monetise liquid assets in the initial days of a stress. Assessing frictions to monetisation of liquidity resources as part of internal stress testing. Broadening firms’ consideration of monetisation in internal stress testing by requiring them to assess ’monetisation risk’ rather than ‘marketable asset risk. Removing a requirement to report the ‘monetisation actions’ section of PRA110 . Assessing the adequacy of the composition of liquidity resources as part of overall liquidity adequacy rule (OLAR). Preparing a stress scenario to assess the firm’s ability to monetise liquid assets in the initial days of a stress. Assessing frictions to monetisation of liquidity resources as part of internal stress testing. Broadening firms’ consideration of monetisation in internal stress testing by requiring them to assess ’monetisation risk’ rather than ‘marketable asset risk. Removing a requirement to report the ‘monetisation actions’ section of PRA110 . Removing the exemption for Level 1 Assets (including sovereign bonds) from the Liquidity Coverage Ratio (LCR)operational requirements for monetisation testing; Clarifying the role of central bank facilities within the prudential liquidity framework including an update to PRA expectations and policy on Bank of England facilities. Requiring firms to monitor and assess their pre-positioned collateral with central banks as an additional liquidity resource, Administrative changes to the Internal Liquidity Adequacy Assessment (ILAA) rules and supervisory expectations following changes resulting from the above changes, which includes streamlining of content and legacy references to the European Banking Authority (EBA). The PRA proposes a phased implementation: Proposals 1, 3, and 4 will be implemented immediately upon rule finalisation; all other requirements take effect 12 months later. The deadline for this consultation is June 17, 2026, and responses can be made by email to CP5_26@bankofengland.co.uk .

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United Kingdom's Prudential Regulation Authority Modernises Liquidity Policy Framework for Banks and Building Societies

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UK’s Prudential Regulation Authority Consults on Modernising the Liquidity Policy Framework