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BNM/RH/GL 001-07

Prudential Financial Policy Department

Liquidity Framework

Page 3/28

PART C

POLICY REQUIREMENTS

  • 4.

    The broad concept

    • 4.1.

      The main thrust of the Framework’s approach to liquidity management is the projection up to 1 year of the maturity profile of a banking institution’s assets, liabilities and off-balance sheet commitments from a given position. The focus is on the ability of a banking institution to match its short-term liquidity requirement arising from maturing obligations with maturing assets, followed by a medium-term assessment of liquidity up to 1 year. The analysis will also be supported by some indicative ratios on the banking institution’s funding structure, which serves to monitor whether or not a banking institution is becoming over reliant on a particular funding source.

    • 4.2.

      Liquidity is assessed from three levels:

      • 4.2.1.

        The first level assesses the sufficiency of a banking institution’s liquidity in the normal course of its business over the next few months.

      • 4.2.2.

        The second level assesses whether or not a banking institution has the capacity to withstand liquidity withdrawal shocks.

      • 4.2.3.

        The third level assesses a banking institution’s general funding structure, in particular, to assess the degree of dependency on certain known volatile markets.

  • 5.

    Liquidity measurement

    • 5.1.

      First level liquidity measurement

      • 5.1.1.

        The liquidity measurement framework begins with a maturity ladder profile of five maturity bands beginning from “up to 1 week” (“up to 3 days” for investment banks) to a “6 to 12 month” band. Banking institutions’ assets, liabilities and off-balance sheet commitments

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