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The banking and building society sectors have backed strengthening liquidity provisions and the assumptions on which they are based, following the crisis at Northern Rock, according to the City regulator's feedback on bank liquidity requirements.

In its 49-page feedback document, following the discussion paper published in December, the majority of respondents to the FSA's paper claimed to have recognised the benefits of transparency and disclosure on institutional liquidity as a way of increasing vigilance and public confidence.

However, this spirit of openess did not extend to disclosing the names of banking institutions who access standing facilities from the central bank as the industry claimed the media and general public misunderstood the facility. Also, some respondents suggested the use of the central bank's funds should be made easier with a lower penalty rate although others also felt the actual name of the facility should be changed as it carried too much stigma.

Education was an ongoing theme in the report as respondents felt the media and general public did not fully comprehend measures in place. For this reason, there was a mixed reaction to changes to the depositer scheme with many claiming the improvement in overall confidence would not necessarily dissuade customers from removing deposits in times of crisis.

There was also strong agreement on the need to continue coordinating work on liquidity both on the national level with the other tripartite authorities, including the banking reform work, and on the international level.

Elsewhere, respondents agreed quantitative requirements are a necessary requirement of a liquidity regime for the short-term and said the industry should aim for one regime to replace the existing three. However, scepticism was expressed on the viability of a standardised approach or the ability to safeguard against long term liquidity stresses.

Further to this, the FSA will be running an industry group to address emerging issues on liquidity as well as setting up a regularly updated website.

The City watchdog also aims to publish a consultation paper in the autumn, which will set out proposals on practices for managing liquidity risk with a strong focus on stress testing. These requirements will reflect the work currently under way in the Basel Committee on banking supervision, due to be consulted on in July

Adrian Coles, director general for the BSA, said he welcomed the FSA's commitment to consult further as well as the emphasis on stress testing however he warned the watchdog should refrain from micro-managing.

He said: "We welcome the FSA's commitment to consult further on all aspects of the new regime. Societies would also agree with the FSA's strong focus on stress testing.

"It remains important, however, that building societies retain the ultimate decision-making responsibility on how much liquidity they should hold and that the FSA does not try to micro-manage building societies' balance sheets."

Simon Hill, director of the prudential capital and risk team for the British Bankers' Association, said he was pleased he recognised the FSA had recognised banks use stress testing and scenario planning as key tools when planning liquidity however he gave a more cautious welcome to transparency.

He said: "The banks have looked extensively at various stress testing over the past 10 months and we are happy the watchdog has recognised this.

"Philosophically we support greater transparency but there is a risk that a single approach to this would create more questions than answers as there is no one-size-fits-all answer."

The news comes as the FSA publishes a paper focusing on what further information the regulator might publish about firms and industry in the interests of transparency. In the report, it set out a code of practice with the aim of providing a transparent mechanism for guiding the regulator's decisions.