Liquidity Risk Management

Liquidity risk management
International framework for liquidity risk

measurement, standards and monitoring
Foreword
The financial crisis exposed the lack of depth in existing • Increased focus on regulatory supervision, monitoring
liquidity risk measurement and management practices market indicators and information sharing between
of banks and financial institutions across the globe. regulators
As the global financial system emerges from the crisis
• Enhanced public disclosures about liquidity information
with unprecedented levels of liquidity support from
central banks, it has become imperative to strengthen To help Indian Banks understand the key
liquidity management practices. To further this end, the recommendations of the BCBS consultative document
Basel Committee for Banking Supervision (BCBS) has and its potential impact of existing liquidity management
issued a consultative document on the “International practices in India, Ernst & Young has compiled a brief
framework for liquidity risk measurement, standards document which is enclosed herewith for your kind
and monitoring.” The recommendations contained in the perusal. The document provides a perspective on:
consultative document are expected to be finalized by the • Evolution of liquidity risk management
end of 2010 and implemented by 2012.
• Key features of the proposed framework
The key recommendations in the consultative document
include: • Current state of liquidity risk management in India
• Increased use of severe stress scenarios to evaluate • Bridging the gap with the proposed framework
the balance sheet strength • Key challenges for Indian Banks and the approach
• Incorporating liquidity risks, costs and benefits in towards implementing the framework
product pricing and performance measurement We sincerely hope that you find the enclosed document
• Introduction of standard ratios and monitoring tools resourceful. In case you need further information and
insights, please feel free to reach out to us.
• Increased focus on the asset-liability structure and
availability of high-quality liquid assets to cushion
against stressed market conditions
• Comprehensive framework for measuring off-balance Hemal H Shah
sheet and contingent liquidity risks
Partner — Financial Services,
Risk Advisory,
Ernst & Young Pvt. Ltd.
2 Liquidity risk management

Contents
Evolution of liquidity risk management 04

Key features of the proposed framework 09
Current state of liquidity risk management in India 17
Bridging the gap with the proposed framework 20
Key challenges and way forward 24
Abbreviations
BIS Bank of International Settlements ASF Available amount of stable funding
BCBS Basel Committee for Banking Supervision RSF Required amount of stable funding
ALM Asset liability management CRR Cash reserve ratio
OMO Open market operations RBI Reserve Bank of India
SLR Statutory liquidity ratio CBLO Collateralized borrowing and lending obligation
MTM Mark-to-market CDS Credit default swap
DGA Duration gap analysis CCIL Clearing Corporation of India Limited
LCR Liquidity coverage ratio FTP Fund transfer pricing
NSFR Net stable funding ratio NII Net interest income
SDA Standardized duration approach ALCO Asset Liability Management Committee
PSE Public sector enterprises
Liquidity risk management 3

Evolution of liquidity
risk management

Reserve Bank of India Basel Committee for
Banking Supervision
2010 Comments received on consultative paper;

2010
final guidelines expected by the end of the year
2009
More granular bucketing Final principles on sound stress testing and
2008 2009 consultative paper on international liquidity
required; guidelines on
modified duration based 2007-08 risk standards issued
approaches also issued 2007
Principles of sound liquidity management
2006 2007-08 practices revised; management and
supervisory challenges also highlighted
2005
2004
2003
2002
2001
“Sound practices for managing liquidity in
2000 2000 banking organization” published by BCBS;
Circular on ALM systems principles revised in 2008
issued; reporting requirements 1999
1999
prescribed by this circular still
in practice 1998
1997
1996
1995
1994
1993
“Framework for measuring and
1992 1992 managing liquidity” issued by BIS
outlining the broad ALM principles
1991
1990
According to the Declaration on Strengthening the Financial System at the London

Summit, the BCBS and national authorities should develop and agree by 2010 a global
framework for promoting stronger liquidity buffers at financial institutions, including
cross-border institutions.

Liquidity risk framework: key enhancements
Principles for sound liquidity risk management and supervision
Increased importance 2
8
and use of severe stress
test scenarios
Requirement to disclose Introduction of the
specific quantitative concept of liquidity risk
information about ALM tolerance in times of
as a part of the public stressed market
disclosures conditions
Increase focus on
Product pricing and
regulatory supervision,
7 Key enhancements over performance measurement 3
monitoring market
the principles issued in 2000 to incorporate liquidity costs,
indicators and information
benefits and risks
sharing between regulators
Increased stress on
Contingency funding plans maintaining high quality
to be made more practical, liquid assets as a cushion in
including the periodic stressed situations
testing of the plans More comprehensive
assessment of
contingent liquidity
risks and off-balance
6 4
sheet items
The BIS principles issued in 2000 focused on the overall structure of liquidity
management and propagated an approach that focused on assessing funding gaps.
The focus of the new principles is mainly on stress testing, standardizing liquidity
measures across banks and most importantly integration of product pricing and
performance measurement with the liquidity risk framework.

Principles for sound stress testing practices and supervision
Increased dialogue between supervisors and public authorities/industry
Supervisors to consider standardizing scenarios for stress testing 21
20
Supervisors to assess future capital resources and capital needs of a bank
19
Supervisors are required to suggest changes to the 18

stress testing framework where deficiencies are identified Supervisors may ask banks to perform
17 sensitivity analysis for specific portfolios
Specific testing for highly leveraged
counterparties such as hedge funds, 16 Supervisors to perform comprehensive assessment of
financial guarantors and investment banks the stress testing framework
15
14 Reputational risk and its impact on liquidity to be covered in stress tests;

off-balance sheet vehicles to be covered in the stress test
13 Stress testing program to cover pipeline and warehousing risks
12 Stress tests to specifically recognize and address all potential risks from complex products
11 Need to challenge the effectiveness of risk mitigation techniques
10 Simultaneous stress testing of the composite impact of liquidity risk and asset valuation
9 Introduction of the concept of reverse stress tests that can affect the viability of the bank
8 Stress tests to focus on forward looking scenarios, i.e., enhanced relevance of dynamic liquidity reports
7 Stress testing to focus on firm-wide risks specifically relating to funding and liquidity gaps
6 Involvement of independent internal audit and risk function in validating stress testing framework
5 Enhanced infrastructure and data quality, i.e., increased focus on data warehousing systems
4 Need to document details, policies and procedures for stress testing
3 Collaboration expected between traders, business managers, controllers to arrive at stress testing framework
2 Measures are complementary to existing measures and are expected to be filtered to a portfolio level
1 Stress testing to form a part of the governance framework; results expected to impact strategic business decisions
With the increased focus on stress testing, the revised framework has
prescribed detailed principles that are aimed at reducing differences in
methodologies followed to conduct stress testing.

Convergence of the enhancements into a
standard framework
International framework for liquidity risk measurement, standards and monitoring
Regulatory standards to supervise liquidity risk Monitoring tools
Contractual maturity mismatch

Liquidity coverage ratio (LCR)
Concentration of funding
Net stable funding ratio (NSFR) Available unencumbered assets
Market-related monitoring tools
Liquidity risk — management Principles for sound liquidity risk Principles for sound stress
and supervisory challenges: management and supervision: testing practices and supervision:
February 2008 September 2008 May 2009
Building blocks for the new framework
The various principles prescribed by BIS between 2007 and 2009 form the basis for the new framework. The framework
stresses on convergence in the following areas:
• Two standard ratios to measure and monitor the health of a bank’s liquidity. The method for computation of ratios has
been standardized to facilitate comparative analysis between institutions.
• The standard ratios are based on stress scenarios and assess the ability to meet liquidity requirements over a 30 day
horizon and a 1 year horizon
• The new framework also prescribes monitoring tools. These monitoring tools are expected to replace current balance
sheet ratios and maturity gap analysis conducted by banks to assess funding mismatches.

Key features of the
proposed framework

Regulatory framework to supervise
liquidity risk
Liquidity coverage ratio: an overview


Stock of high quality liquid assets

> 100%
Net cash outflow over a 30-day time period
• Banks are required to assess this ratio continuously over • Cash outflows to be assessed based on the run-off on
a 30-day horizon deposits in stressed market conditions; minimum run-off
ratios by category prescribed
• Definition of stock of high quality assets restricted to
those with low credit and market risk, ease of valuation, • Cash outflows to include potential draw on committed
listed on recognized exchange markets, presence of lines and contingent funding liabilities
active market and committed market makers, and low
• Cash inflows to include only contractual flows from
market concentration
completely performing assets; absolute freeze on lines of
• Definition of liquid assets restricted to cash, central bank credit expected in case of stress
reserves, government/central bank issued debt and
corporate bonds with low credit risk and haircuts
The ratio focuses on the ability of a bank to meet its liquidity requirements
in extreme stress scenarios over a 30 day horizon.

Liquidity coverage ratio: key computations

Stock of high quality liquid assets

> 100%
Net cash outflow over a 30-day time period
High quality Government/central

Cash liquid assets bank issued debt
Marketable securities issues by

Corporate bonds with sovereigns, para-sovereigns with
Central bank reserves
AA & A- rating with a a 0% risk-weight under the
that can be drawn in
haircut of 20% and standardized duration approach
stress scenarios
40%, respectively (SDA), with deep repo markets
and being non-financial services
Retail deposit Unsecured 100% of retail 100% of

run-off at a wholesale funding contractual wholesale
minimum of run-off by inflows from fully contractual
Cash non-financial Cash inflows from fully
7.5% or 15% performing assets
outflow corporates at 75% inflow performing assets
Unsecured Unsecured wholesale

Unsecured 0% cash flows
wholesale deposit funding run-off by non-
wholesale from reverse
run-off by small financial customers, 0% cash inflow 100% contractual
funding run-off repos and 100%
business at a sovereigns, central from inflows from
provided by other cash flows from
minimum of 7.5% banks and public sector committed derivatives
legal entity reverse repos of
or 15% enterprises (PSEs) at a lines of credit
customers at illiquid securities
minimum of 25%
100%
Increased liquidity needs Loss of funding on Draw on committed

related to valuation asset-backed commercial credit and liquidity
changes on derivative paper and investment facilities
transactions vehicles Inclusion of
additional
components of
Increased liquidity needs Increased liquidity needs Loss of funding on term Contingent funding cash outflow
related to downgrade triggers related to potential for asset-backed securities, liabilities
in short-term financing valuation changes on posted covered bonds and other
transactions, derivatives and collateral securing derivative structured financing
other contracts transactions – 20% instruments

Liquidity coverage ratio: key impact areas International framework for liquidity risk measurement, standards and monitoring
(Indian perspective)
Detailed
assessment of
Need to revisit the mark-to-market
definition of retail (MTM)/margin cash
and wholesale flows from derivative
deposits within the transactions based
ALM policy on actual term
Assess actual
run-offs based on sheets
behavioral studies
in stress scenarios
Lack of liquid
to determine Subordinated
markets in
run-off ratios stability status to
government
securities means financial
only certain institutions makes
securities may inter-bank funding
qualify for the an unacceptable
Continuous computation of source in case of
Liquidity stress Need to
assessment of liquid funds
coverage ratio: consolidate
liquidity measures
key impact areas liquidity measures
will require
Since contingency from an Indian for banks with a
improved data Lack of deep repo
cash flows are perspective foreign presence
warehousing markets means that
futuristic and dynamic high-quality assets
liquidity reports do not may be restricted to
adequately address cash and securities
contingencies, qualifying for
assessment statutory liquidity
Committed funding
methodology needs ratio (SLR)
lines and undrawn
to be devised
facilities likely to
require increased
Derivative scrutiny to assess Need for
valuations will liquidity impact clarification on
become a key country-risk
input for liquidity impact, while
reporting, making measuring
the need to high-quality liquid
validate derivative assets based on
valuations critical credit ratings

Net stable funding ratio: an overview International framework for liquidity risk measurement, standards and monitoring

Available amount of stable funding (ASF)

> 100%
Required amount of stable funding (RSF)
• Banks required to assess this ratio continuously over • Net stable funding ratio (NSFR) is similar to maturity
a 1 year horizon mismatches currently performed for structural liquidity
reports; however, the focus is only on a 1-year time
• Available amount of stable funding arrived at by applying
bucket in aggregate and is based on stress scenarios
ASF factors to liabilities on the balance sheet
• Facilities from central banks except under open market
• Required stable funding arrived at by applying RSF
operations (OMO) are not to be considered in this ratio to
factors to assets in the balance sheet
avoid dependence on central bank funding
• Required stable funding to also cover off-balance sheet
items; certain degree of discretion available to local
country supervisors on RSF factor to be applied
The ratio focuses on the ability of a bank to meet its liquidity requirements in
continued stress conditions over a 1 year period.

Net stable funding ratio: key computations International framework for liquidity risk measurement, standards and monitoring

Available amount of stable funding (ASF)

> 100%
Required amount of stable funding (RSF)
Available sources of funding Required sources of funding
Component ASF Component RSF
Tier 1 and Tier 2 capital 100% Cash/money market instruments 0%
Securities with effective maturity <1 year 0%

Preference capital not included in Tier 2 100%
O/S loans to FS entities maturity <1year 0%

Long-term liabilities exceeding 1 year 100%
Marketable securities of sovereign/
5%
para-sovereign
Stable non-maturing retail deposits 85%
Unencumbered corporate bonds with AA
20%
rating and effective maturity > 1 year
Stable unsecured wholesale funding 85%
Gold 50%
Less stable non-maturing retail deposits 70% Unencumbered corporate bonds with AA- to
50%
A- rating and effective maturity > 1 year
Less stable unsecured wholesale funding 70% Loans to non-financial corporate entities with
50%
less than 1 year maturity
Unsecured wholesale funding provided Loans to retail clients with residual maturity
50% 85%
by non-financial corporate customers < 1 year
Other liabilities and equity categories 0% All other assets 100%
Increased emphasis on asset-liability composition and CRR/SLR ratios

Net stable funding ratio: key impact areas International framework for liquidity risk measurement, standards and monitoring
(Indian perspective)
Detailed
assessment of
Need to revisit MTM/margin cash
funding mix flows from
especially to the derivative
extent it relates to transactions based
inter-bank funding on actual term
sheets
Increased focus on
retail/SME funding
Need to revisit the CRR/SLR ratios

definition of retail likely to have
and wholesale increased
deposits within the importance in the
ALM policy context of this ratio
Negative gap Net stable
limits in existing Potential need to
funding ratio: key disincentivize
ALM policies impact areas
required to be bulk deposits
from an Indian from Corporates
aligned with this perspective
ratio
Potential need to Expectation of
enhance Tier I specific guidelines
and Tier II capital on off-balance sheet
base items from RBI
Need to optimize cost

of deposits once
deposit mix is
changed
Increased focus on Increased emphasis

lending to on external rating of
minimum AA rated loans/corporate
counterparties bonds

Liquidity risk monitoring tools

Contractual Concentration of Available Market-related

Tool maturity funding unencumbered monitoring tools
mismatch assets
Definition Contractual cash • Funding liabilities Available • Market-wide

and security inflows sourced from each unencumbered assets information
and outflows from significant that are marketable • Information on
all on and counterparty and as collateral in the financial
off-balance sheet instrument/ bank’s secondary markets sector
items mapped to total balance sheet and/ or eligible for • Bank-specific
defined time bands • List of assets and central bank’s information
on their respective liabilities by standing facilities
maturities significant
currency
Key • Similar to existing • Significant defined • Lack of deep repo • Need for
considerations structural liquidity as more than 1% of markets may supervisors to
report the bank’s total reduce the amount enhance
• Assets to be reported liabilities of encumbered monitoring tools
based on latest • Categorization of assets • Potential need for
possible maturity and counter-parties/ • Securities pledged supervisors to
liabilities based on group companies as collateral for enhance
earliest possible becomes a CBLO/with CCIL monitoring tools
maturity significant may not qualify for and seek reports
• Behavioral consideration this requirement from banks in
assumptions to play • Stress on • Potential increase electronic formats
a large part in instrument in cost of funding • Need to standardize
determining diversification by retaining the market-based
contractual maturity • Rising importance larger value of triggers in the
mismatch of instrument unencumbered absence of deep
classification assets CDS and corporate
guidelines • Valuation may play bond markets
• Separate reporting a key role in this
of the metrics metric in case of
across time corporate bonds
buckets

Current state of liquidity
risk management in India

Maturity ladder in the liquidity risk
management process
Components of the asset liability management process
• Funding transfer pricing mechanism

• Market-based product pricing
• Centralized NII management
• Hedging balance sheet
mismatches – forex, interest rate
• Linking asset-liability positions benchmarks and timing
with market-based pricing curves • Integrating funding and ALM policies
• Modified duration analysis for
assets and liabilities
• Central warehousing of data • Assessing impact on economic
• Forecasting of cash flows Balance sheet management
value of equity
• Segregating rate sensitive items • Setting duration-based limits
• Cash flow bucketing • Balance sheet stress testing Maturity level 3
• Identifying structural gaps
• Identifying dynamic gaps
• Setting gap limits
Duration gap analysis
• Determining liquidity ratios
• Managing high level liquidity and
Maturity level 2
interest rate risk
Traditional gap analysis

ise
xerc
Maturity level 1 ement e
anag
iability m • Profitability management
tl
the asse
• Predictability and smoothening of
s of
Focu net interest income
• Objective assessment of product
• Quantify impact of interest rate pricing
movements on the overall balance
sheet
• Align balance sheet/off-balance
• Identify liquidity mismatches
sheet items with market pricing
• Align funding strategy to address
benchmarks
liquidity mismatches
• Identify directional risk of interest
rate movements

Profile of Indian banks relating to liquidity risk
Genuine utility
Qualitative reporting Integration with business strategy
Liquidity ratios Bucketing and gap analysis
Integration of ALM and Gap limits

balance sheet management
Funding policies and Hedging balance sheet risk

contingency plans
Data warehousing
FTP mechanism
Lack of data for decision support Academic computations
Cash flow forecasting
Market - based product pricing
Modified duration based analysis
Centralized NII management Liquidity stress testing
Computation
Most Indian banks are still at Fund transfer pricing mechanisms

maturity level 1 in the liquidity exist in theory. However, the
risk management process with linking of product pricing with
greater emphasis still placed costs, risks and the availability of
on traditional gap analysis liquidity is not yet undertaken
Profile of
Indian banks
The centralized availability

The balance sheet
of quality data to support
management function is
liquidity risk management
generally misaligned with ALM
is a key challenge

Bridging the gap with the
proposed framework

System support Data analytics Policy level control
Data collation Mismatch assessment ALM policy
Data source identification Gap assessment Gap limits and ratios
Data warehousing Behavioral analysis Stress testing

documentation
Incorporating assumptions
Stress testing Contingency funding plans
defined in the standard
• Liquidity mismatches • Time bucket-wise gap analysis • Aligning the asset-liability mix
• Data inputs for LCR and NSFR • Impact of historical patterns on • Operationalizing contingency
• Cash flow forecasts cash flows plans
• Data inputs for monitoring tools • LCR and NSFR computation • Stress testing assumptions and
• Contractual maturity mismatch validation
Migrating seamlessly to the proposed framework will require Indian banks to enhance the following aspects of the asset
liability management framework:
• Data gap analysis: The current framework of preparing ALM statements as prescribed by RBI is based on pre-defined
assumptions for each field of data extracted from core banking and treasury systems. The new framework will require a
re-mapping of all data sources, re-validation and re-computation of all assumptions.
• Data centric mismatch assessment: While the current ALM framework is heavily focused gap analysis, the new
framework will require increased use of behavioural studies and stress testing. The need to collate historical data and
make realistic assumptions is a critical requirement to put in place an effective stress testing framework.
• Updation of the ALM policy: The current policy framework of most Banks focuses on gap limits and balance sheet ratios.
The gap limits and ratios will be required to be re-computed in line with the revised framework. Most importantly, the new
framework puts increased focus on sharpening the stress testing documentation and contingency funding plans.

Balance sheet impact assessment
Pricing analysis Modified duration gap Modified duration of equity
Identify pricing curves Compute modified duration Assess impact on NII

of each balance sheet item
Link balance sheet items Compute modified duration Assess impact on value of
with market pricing curves of gap for the balance sheet equity based on leverage
Generate the bucket-wise Set the duration gap Stress test economic
cash flows analysis (DGA) limits value of equity
• Market based pricing for all • Quantification of interest rate • Overall profitability impact
assets and liabilities risk for the entire balance sheet assessment
• Quantification of interest rate • Quantification at different • Assess impact on theoretical
risk for each balance sheet item points on the interest rate value of equity
curve • Balance sheet stress testing
In the current liquidity management scenario in India, asset liability management and balance sheet management are
generally treated as separate functions. The new framework requires closer integration between the two functions. It
also requires integration of product pricing and assessment of cost-benefit from liquidity risks. With the introduction of
new framework, fund transfer pricing will become an integral part of the ALM framework.

Market-based pricing Profitability management Long-term sustainability
Fund transfer pricing NII assessment Balance sheet hedging
Align product Centralized monitoring of Hedging program to

pricing policies NII for all products address mismatches
Review profitability at a NII risk due to Integration with

product level current mismatch funding policies
Mechanism to raise funds NII risk due to interest Profitability forecasts

and allocate between units rate mismatch
• Market-based product pricing • Control over NII • Stable hedging program to lock
• Fund transfer pricing process • Strategic alignment of NII in long-term NII
between treasury and business management based on • Funding program aligned with
units product risk-return profile mismatches in structural cash
• Allocation of funds based on flows
risk-return analysis
Once Bank’s have adopted the principles of the new framework, it is likely to smoothen the transition to centralized
NII management. The new framework will also facilitate improved liquidity risk-return analysis.

Key challenges and
way forward

Challenge area Potential issues Way forward
• Redefining system requirements

• Need to manually test assumptions until
• Warehousing of data across banking systems are ready
systems • Need for a strong data warehouse and
• Redefining assumptions related to integration with market information
bucketing and stress scenarios systems, core banking systems, valuation
Systems • Collating market information with systems systems and treasury systems
• Integrating the fund transfer pricing
(FTP) mechanism
• Integrating pricing framework
• Need to re-write ALM policies

• Need to draw up contingency funding
plans after considering all possible
• Bucketing and stress testing resources
assumptions in existing policies not • Integrated approach between balance
aligned with the revised framework sheet management and asset liability
• Existing policies do not adequately management
Policies address contingency funding • Enhanced role of senior management
• Lack of integration between ALM and and integration between functions
funding policies
• Need to re-write ALM process manual

• Need for a separate operating
• Lack of clear role definition between
procedure manual on stress testing
functions
• Roles and responsibilities of
• Existence of overlapping functions
departments, especially relating to
between departments
data interfaces to be clarified in
Processes and • Methodologies not documented in
greater detail
procedures sufficient detail
• Stress testing assumptions not in line
with principles defined by BCBS
• Training to operational staff on revised

guidelines and policies
• Lack of adequate training to • Greater involvement of the Board of
operational staff on revised guidelines Directors, the Asset Liability
• Need to apprise the board of directors Management Committee (ALCO) and
and senior management on importance Risk Committee in updating risk policies
Knowledge of setting risk tolerance limits • Involvement of business managers in
management • Knowledge transfer on product pricing overall balance sheet management
and integration with market-based exercise
pricing tools

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Liquidity risk management

International framework for liquidity risk

2 Liquidity risk management

Evolution of liquidity risk management 04

BIS Bank of International Settlements ASF Available amount of stable funding

ALM Asset liability management CRR Cash reserve ratio

OMO Open market operations RBI Reserve Bank of India

MTM Mark-to-market CDS Credit default swap

DGA Duration gap analysis CCIL Clearing Corporation of India Limited

LCR Liquidity coverage ratio FTP Fund transfer pricing

NSFR Net stable funding ratio NII Net interest income

SDA Standardized duration approach ALCO Asset Liability Management Committee

PSE Public sector enterprises

Liquidity risk management 3

4 Liquidity risk management

2010 Comments received on consultative paper;

According to the Declaration on Strengthening the Financial System at the London

Liquidity risk management 5

Principles for sound liquidity risk management and supervision

6 Liquidity risk management

Increased dialogue between supervisors and public authorities/industry

Supervisors to consider standardizing scenarios for stress testing 21

Supervisors are required to suggest changes to the 18

14 Reputational risk and its impact on liquidity to be covered in stress tests;

11 Need to challenge the effectiveness of risk mitigation techniques

4 Need to document details, policies and procedures for stress testing

Liquidity risk management 7

International framework for liquidity risk measurement, standards and monitoring

Regulatory standards to supervise liquidity risk Monitoring tools

Contractual maturity mismatch

Net stable funding ratio (NSFR) Available unencumbered assets

Market-related monitoring tools

Building blocks for the new framework

8 Liquidity risk management

Liquidity risk management 9

Liquidity coverage ratio: an overview

Regulatory standards to supervise liquidity risk Monitoring tools

Contractual maturity mismatch

Net stable funding ratio (NSFR) Available unencumbered assets

Market-related monitoring tools

Building blocks for the new framework

Stock of high quality liquid assets

10 Liquidity risk management

Regulatory standards to supervise liquidity risk Monitoring tools

Contractual maturity mismatch

Net stable funding ratio (NSFR) Available unencumbered assets

Market-related monitoring tools

Building blocks for the new framework

Stock of high quality liquid assets

High quality Government/central

Marketable securities issues by

Retail deposit Unsecured 100% of retail 100% of

Unsecured Unsecured wholesale

Increased liquidity needs Loss of funding on Draw on committed

Liquidity risk management 11

Regulatory standards to supervise liquidity risk Monitoring tools

Net stable funding ratio (NSFR) Available unencumbered assets

Market-related monitoring tools

Building blocks for the new framework

12 Liquidity risk management

Regulatory standards to supervise liquidity risk Monitoring tools

Contractual maturity mismatch

Net stable funding ratio (NSFR) Available unencumbered assets