Prudential Financial Policy Department
considered and endorsed by the banking institution’s Asset-Liability Management Committee (ALCO) before seeking the approval of the Bank. The methods approved should be used consistently and any subsequent changes should also be endorsed by the banking institution’s ALCO and approved by Bank Negara Malaysia.
The objective of the assessment of liquidity at this level is to arrive at a projected net maturity mismatch profile of a banking institution stretching from 1 week (3 days for investment banks) to 1 year.
Second level liquidity measurement
At the second level, the focus of assessment is whether a banking institution has sufficient liquidity surplus and reserves to sustain a sudden liquidity withdrawal shock arising from a banking institution specific crisis.
Building on the net maturity mismatch profile earlier, liquidity measurement at this level takes into account the additional emergency funds that can be quickly realized from the sale of liquefiable assets (that is to bring forward their maturity date) or drawn upon from formally available credit lines.
On average, Bank Negara Malaysia expects banking institutions to sustain heavy withdrawals up to a period of 1 month. The compliance requirement as described in paragraph 7.5 reflects the typical rate of heavy withdrawals that Bank Negara Malaysia expects to take place during a crisis.
To test the banking institution’s ability to withstand the crisis, the adjusted maturity profile is then compared with the potential amount of “heavy withdrawals” that can take place during a crisis. In other words, the available cumulative mismatch to accommodate liquidity shocks has to be greater than the compliance requirement.
The actual quantum varies f r o m banking institution to banking institution depending on their funding structure and will be a matter to be agreed between Bank Negara Malaysia and the banking institution on a case-by-case basis. Banking institutions will