THE second consultation paper on bank liquidity issued in July has met with few objections, but bankers believe more discussion about and understanding of individual bank's liquidity management is still needed. Comments received by the Hong Kong Monetary Authority before the consultation period ended at the end of September showed that the thrust and principles embodied in the paper were generally accepted. Some minor technical amendments were, however, put forward for further refining and polishing. ''We are still studying the comments but those were just technical details. We expect to put out a policy paper soon so that the new regime can be implemented early next year,'' said executive director (banking policy) Gordon Leung. However, bankers are still worried because the paper leaves a number of points open to interpretation. ''The next stage is for the Monetary Authority to implement the policy sensibly. They have to ensure that they fully understand how banks manage their liquidity,'' said John Aspden, chairman of the Deposit-taking Companies Association. In assessing banks' liquidity positions, the consultation paper requires them to furnish a maturity profile return, listing their liability and asset structure in relation to its maturity which ranges from one day to more than one year. The two sides will be compared to obtain the bank's maturity mismatch position ''and provide a basis for reviewing and monitoring an institution's ability to manage its cash flows'', the paper said. But the Monetary Authority stressed that ''while the position up to one year is of interest since it may provide early warning of future liquidity problems, the main emphasis of the mismatch approach is on the short-term, ie; the net cumulative mismatches up to seven days and up to one month''. ''But it is unrealistic just to look at the figures. For instance, on banks' commitment, we extend overdraft facility to customers, but this facility is seldom completely used up,'' Mr Aspden said. ''Also, on the call account, though the deposit can be withdrawn at call, it is rare that they will all go out overnight,'' he added. Consequently, the figures on the return form are part and parcel of the whole picture. The bank's past experience with customers and its deposit movement history should also be taken into account. Since this new liquidity regime will apply to all financial institutions in the territory, regardless of their nature and differences in liquidity requirements, the approach has to be flexible in order to be widely applicable. ''We have large institutions doing retail business, we have foreign banks doing wholesale business and deposit-taking companies doing hire purchase. Their difference business warrants different liquidity positions,'' Mr Aspden said. The technical points raised by banks for further revision include the definition of a back-to-back transaction. In the paper, it was stated that ''in order to ensure proper monitoring, the transactions should be carried out only with head offices, not with sister branches''. However, there was a suggestion to include transactions with sister banks as constituting acceptable back-to-back transactions. Furthermore, to meet the eligibility test to be qualified as liquifiable assets, securities must have a credit rating from Moody's or Standard and Poor's. Banks recommended relaxing this stringent rule by extending it to cover issues accepted by the Organisation for Economic Co-operation and Development (OECD) countries and central banks. Expecting no further major consultation, the authority will make subsequent revisions based on the comments and a new policy paper will be issued.