According to the Bank of International Settlements, a bank should disclose sufficient information regarding its liquidity risk management to enable relevant stakeholders to make an informed judgement about the ability of the bank to meet its liquidity needs.
A bank should disclose its organisational structure and framework for the management of liquidity risk. In particular, the disclosure should explain the roles and responsibilities of the relevant committees, as well as those of different functional and business units.
A bank?s description of its liquidity risk management framework should indicate the degree to which the treasury function and liquidity risk management is centralised or decentralised.
A bank should describe this structure with regard to its funding activities, to its limit setting systems, and to its intra-group lending strategies.
Where centralised treasury and risk management functions are in place, the interaction between the group?s units should be described. The objective for the business units in the organisation should also be indicated, for instance, the extent to which they are expected to manage their own liquidity risk.
As part of its periodic financial reporting, a bank should provide quantitative information about its liquidity position that enables market participants to form a view of its liquidity risk.
Examples of quantitative disclosures currently disclosed by some banks include information regarding the size and composition of the bank?s liquidity cushion, additional collateral requirements as the result of a credit rating downgrade, the values of internal ratios and other key metrics that management monitors (including regulatory metrics that may exist in the bank?s jurisdiction), the limits placed on the values of those metrics, and balance sheet and off-balance sheet items broken down into a number of short-term maturity bands and the resultant cumulative liquidity gaps.
A bank should provide sufficient qualitative discussion around its metrics to enable market participants to understand them, eg the time span covered, whether computed under normal or stressed conditions, the organisational level to which the metric applies (group, bank or non-bank subsidiary), and other assumptions utilised in measuring the bank?s liquidity position, liquidity risk and liquidity cushion.
A bank should disclose additional qualitative information that provides market participants with further insight into how it manages liquidity risk. Examples of qualitative information currently disclosed by some banks are highlighted below.
This list is illustrative rather than exhaustive:
1. The aspects of liquidity risk to which the bank is exposed and that it monitors
2. The diversification of the bank?s funding sources
3. Other techniques used to mitigate liquidity risk
4. The concepts utilised in measuring its liquidity position and liquidity risk, including additional metrics for which the bank is not disclosing data
5. An explanation of how asset market liquidity risk is reflected in the bank?s framework for managing funding liquidity
6. An explanation of how stress testing is used
7. A description of the stress testing scenarios modelled
8. An outline of the bank?s contingency funding plans and an indication of how the plan relates to stress testing
9. The bank?s policy on maintaining liquidity reserves
10. Regulatory restrictions on the transfer of liquidity among group entities.
11. The frequency and type of internal liquidity reporting
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