The Bank of Jamaica (BOJ) is set to make an amendment to liquidity guidelines governing banks in order to better protect customers and ensure that they can access their funds without delay.

This was confirmed by BOJ Deputy Governor Dr Jide Lewis at the central bank’s quarterly monetary press conference on Wednesday. The amendment relates to the BOJ’s standard of sound practice on the liquidity coverage ratio (LCR) which currently sits at 100 per cent with the BOJ pushing to add an additional 20 per cent buffer.

“So, this amendment is about strengthening the banking sector’s ability to meet the obligations of their license as deposit takers. It’s a major source of funding for the banks, but they also have an obligation to make sure that the amount the public comes to them for at an instant, they’re in a position to meet that need,” Lewis said in response to the query.

The LCR is a calculation reported by deposit-taking institutions (DTIs) to the BOJ on a monthly basis. It requires DTIs to hold high-quality liquid assets (HQLAs) that exceed their net cash outflows over a 30-day stress period. If a bank had $1 billion in net cash outflows in a 30-day period, the bank must have $1 billion in HQLAs to pay depositors. The proposed change by the BOJ would require a bank to hold $1.2 billion in HQLAs to meet the demands of depositors under that 30-day stress period.

HQLA’s is categorised into two categories such as level 1 and level 2. Level 1 HQLAs include cash, central bank reserves, certain financial instruments issued by the Government of Jamaica (GOJ) and qualifying marketable securities from central banks and multilateral development banks. Level 2 HQLAs covers other qualified forms of debt and equity. The full value of Level 1 HQLA’s can be accounted for in the HQLA calculation while level 2 HQLAs have haircuts applied in the overall HQLA calculation.

The standard of sound practice document also noted that the BOJ began consultations in March 2025 on the inclusion of a HQLA framework. The document also noted that if a bank falls below the 115 per cent LCR point, the BOJ can implement limits on the discretionary payments like dividends, share buybacks, and bonuses for senior management and executives of banks.

“Essentially, that additional 20 per cent would mean that they are proactively managing their liquidity needs in the future because if it falls to 115 [per cent], they will begin to hear from us at the Central Bank. We will write to them, they will tell us what their plans are to bring it back up to 120 [per cent] and if it falls to 110 [per cent], then they will begin to hear from us in terms of required actions and possible remedial steps and they would enter our ladder of enforcement,” Lewis added on the change.

The LCR ratio was introduced by the Basel Committee of the Bank for International Settlements (BIS) after the global financial crisis in 2008 and was meant as a way to address liquidity risk management and systemic risks from inadequate buffers by financial institutions. The BOJ implemented the full LCR requirement in November 2019 with a minimum of 75 per cent and increased it to 100 per cent in November 2020.

Dr Lewis also noted that this change shouldn’t have a functional impact on the ability of DTIs since the LCR average is 130 — 140 per cent with some DTI’s having a LCR as high as 160 per cent.

Although this proposed move will strengthen the protection of banking customers, some banks have concerns on the numerous changes being pushed in recent times. DTIs are currently reporting to the BOJ under the Basel II and Basel III standards with the Basel III implementation timeline still in the wind. This is due to the numerous legislative requirements that must be brought into law to enact these proposed capital changes.

Basel III will see changes to the bank’s capital requirements and the introduction of the capital conservation buffer (CCB) and countercyclical capital buffer (CCYB) to strengthen the financial system. The BOJ provided responses to DTIs on their queries regarding the introduction of the CCB. When certain legislative requirements take place, the BOJ noted that there would be a one-year phase in arrangement and a the CCB would be adjusted by 0.5 per cent each year until it hits 2.5 per cent.

“However, note that the Bank has calibrated the CCB whilst considering conglomeration and interconnectedness in the Jamaican financial system. In the context of ever evolving risks and since the minimum capital requirements represent a floor on the capital levels that an institution should maintain during normal times, institutions should embrace risk-centric approaches by maintaining additional buffers above the capital adequacy ratio (“CAR”) to absorb losses while continuing to conduct business as normal,” stated the BOJ’s response to DTIs on the CCB.

Also, the BOJ is planning to introduce the special resolution regime (SRR) which was brought to the Jamaican Senate last June under the name Financial Institutions (Resolution and Winding up) Act. This item seeks to provide a mechanism to orderly address any failing financial institution. Apart from this bill seeking to create this orderly scheme of resolution, the bill also seeks to create a fund estimated to be at least $40.1 billion or 1.5 per cent of GDP which would be funded by the financial sector.

“The SRR, when fully implemented, will improve legal certainty and transparency regarding the procedures that would unfold in the event of a financial institution’s failure or impending failure. Furthermore, the anticipated increase in market discipline is expected to reinforce the stability of the financial system and bolster investor confidence,”stated the BOJ’s 2024 financial stability report.

All of these capital changes along with the asset tax plus increased cost to address fraud and security might be impediments to future reductions of interest rates. The BOJ increased the cash reserve/statutory reserve requirement to 6.0 per cent for Jamaican-dollar liabilities and 14.0 per cent for foreign currency liabilities in February 2023. These reserves don’t pay interest to the DTI’s which hold these reserves at the central bank.

The BOJ reduced its policy rate on May 21 to 5.75 per cent, a 1.75 per cent cut since its recent peak of 7.0 per cent. However, BOJ Governor Richard Byles made another plea on Wednesday for the DTIs to start reducing interest rates.