Principle II
Principle II (also: liquidity principle ) was a regulation of the Federal Financial Supervisory Authority , in which credit institutions were obliged to guarantee sufficient solvency at all times . The regulation thus specified Section 11 KWG .
On January 1, 2007, Principle II was replaced by the Liquidity Ordinance.
Liquidity ratio
The key component of the principle was the liquidity ratio . This is the quotient of the available means of payment and the available payment obligations. If the values refer to a month, the one-month key figure is obtained, which was mainly used to assess the liquidity situation. If the quotient is greater than one, so the excess cash the payment obligations , the liquidity is secured.
- where j = 1: due daily for up to one month
The counter "Available means of payment and payment entitlements" is made up of items from two liquidity classes:
- First-class liquidity are positions that can be liquidated at any time and without further ado. These are cash or assets that can be converted into cash.
- Second-class liquidity are claims with a remaining term in maturity band j. This includes financial assets that are not traded on the stock exchange.
The denominator “Callable payment obligations in the maturity band” comprised liability items that can be called up in whole or in part on a daily basis. With the liability item “short-term callable payment obligations”, it is uncertain to what extent this will result in short-term cash outflows. This is known as the retrieval risk . For this reason, these items were weighted with a credit rate . This took into account the level of utilization that can be expected. The amount results from the product of the liability item and the credit rate. The liability items also included items below the balance sheet line , as they are also subject to call risk.
| Liabilities that can be called up at any time | |
|---|---|
| position | Credit rate |
| Daily payables to Credit institutions | 40% |
| Daily payables to Customers | 10% |
| Savings deposits (regardless of the notice period) | 10% |
| Contingent liabilities | 5% |
| Liability amount | 5% |
| Placement and takeover obligations | 20% |
| Irrevocable loans | 20% |
Observation indicators relate the quotient to 1 to 3 months, 3 to 6 months or a period of 6 months.
criticism
The criticism of Principle II mainly related to the simplifications made. It was difficult to predict when and how many deposits would be called up. Significant cash flows when determining the liquidity position were neglected. Incoming and outgoing payments from innovative off-balance sheet transactions were not taken into account.
