Submitted by sevans on Tue, 02/24/2015 - 3:18pm

An institution's liquidity management process should be sufficient to meet its daily funding needs and cover both expected and unexpected deviations from normal operations. Accordingly, institutions should have a comprehensive management process for identifying, measuring, monitoring, and controlling liquidity risk. Because of the critical importance to the viability of the institution, liquidity risk management should be fully integrated into the institution's risk management processes. Critical elements of sound liquidity risk management include:

• Effective corporate governance consisting of oversight by the board of directors and active involvement by management in an institution's control of liquidity risk.

• Appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk.

• Comprehensive liquidity risk measurement and monitoring systems (including assessments of the current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business activities of the institution.

• Active management of intraday liquidity and collateral.

• An appropriately diverse mix of existing and potential future funding sources.

• Adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments that can be used to meet liquidity needs in stressful situations.

• Comprehensive contingency funding plans (CFPs) that sufficiently address potential adverse liquidity events and emergency cash flow requirements.

• Internal controls and internal audit processes sufficient to determine the adequacy of the institution's liquidity risk management process.


Documentation Type: