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BNM/RH/GL 001-07

Prudential Financial Policy Department

Liquidity Framework

Page 1/28

PART A

OVERVIEW

  • 1.

    Introduction

    • 1.1.

      In an effort to enhance liquidity management in banking institutions, Bank Negara Malaysia (the Bank) introduced the Liquidity Framework in 1998 to replace the liquid asset ratio requirement.

    • 1.2.

      The Framework sets out to:-

      • 1.2.1.

        create awareness among banking institutions of their funding structure and their ability to handle short to medium-term liquidity problems;

      • 1.2.2.

        adopt a more efficient and on going liquidity measurement and management for banking institutions; and

      • 1.2.3.

        provide the Bank with a better means of assessing the present and future liquidity position of banking institutions.

    • 1.3.

      The Framework aims to address both institutional and market liquidity concerns:

      • 1.3.1.

        The ability of banking institutions to meet all maturing obligations is assessed through the projection of the banking institutions’ inflows; and

      • 1.3.2.

        The Framework gauges the ability of banking institutions to access funding from the market particularly under stress scenarios.

  • 2.

    Applicability

    • 2.1.

      The Liquidity Framework is applicable to all banking institutions licensed under the Banking and Financial Institutions Act 1989 (BAFIA), namely commercial banks, finance companies and investment banks/merchant banks.

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