Liquidity Risk Control Techniques

Question 1

What are the liquidity risk control techniques?

Answer 1

Basel Committee

1. Liquidity risk management framework
2. Clear liquidity risk tolerances
3. Senior management should develop a strategy, policy and practices to manage liquidity risk in accordance with risk tolerance.
4. Bank should incorporate liquidity costs, benefits and risk in the in internal pricing, performance measurement and new product approval process. Helps align incentives with liquidity risk management.
5. Sound process for identifying, measuring, monitoring and controlling liquidity risk.
6. Liquidity risk to be managed between legal entities, business lines and currencies.
7. Diversify funding sources.
8. Intraday liquidity positions to be managed.
9. Manage collateral positions.
10. Stress test regularly for a variety of scenarios.
11. Contingency funding plan
12. Maintain liquid reserves for stress periods.
13. Publicly disclose information no liquidity risk management and liquidity position to the market.