| 71. | An FBB’s liquidity risk tolerance defines the level of liquidity risk that the FBB is willing to assume. An FBB’s liquidity risk tolerance must be documented and appropriate for the FBB’s operations and strategy.
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| 72. | The liquidity risk tolerance must be reviewed, at least annually, to reflect the FBB’s financial condition and funding capacity.
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| 73. | In setting the liquidity risk tolerance, the senior management must ensure that the risk tolerance allows the FBB to effectively manage its liquidity position in such a way that it is able to withstand a prolonged period of stress.
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| 74. | The liquidity risk tolerance must be articulated in such a way that clearly states the trade-off between risks and profits.
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| 75. | An FBB’s liquidity risk management framework must be formulated to ensure that the FBB maintains sufficient liquidity, including a cushion of unencumbered liquid assets, to withstand a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. The source of liquidity stress could be specific to the FBB or market-wide or a combination of the two.
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| 76. | An FBB’s liquidity risk management framework must be well integrated into the FBB’s overall risk management process.
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| 77. | An FBB’s liquidity risk management oversight function must be operationally independent and staffed with personnel who have the skills and authority to challenge the FBB’s treasury and other liquidity risk management businesses.
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| 78. | The liquidity management strategy must include specific policies on liquidity management, such as:
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| | i. | The composition and maturity of assets and liabilities;
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| | ii. | The diversity and stability of funding sources;
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| | iii. | The approach to managing liquidity in different currencies, across borders, and across business lines; and
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| | iv. | The approach to intraday liquidity management.
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| 79. | The liquidity management strategy must take account of the FBB’s liquidity needs under normal conditions as well as periods of liquidity stress. The strategy must include quantitative and qualitative targets.
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| 80. | The liquidity management strategy must be appropriate for the nature, scale and complexity of the FBB’s operations. In formulating this strategy, the FBB must consider its key business lines, the breadth and diversity of markets, products and home and host regulatory requirements.
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| 81. | The liquidity management strategy, key policies for implementing the strategy and the liquidity risk management structure must be communicated throughout the organisation by senior management.
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| 82. | An FBB must have adequate policies, procedures and controls in place to ensure that the senior management are informed immediately of new and emerging liquidity concerns. These include increasing funding costs or concentrations, increases in any funding requirements, the lack of availability of alternative sources of liquidity, material and/or persistent breaches of limits, a significant decline in the cushion of unencumbered liquid assets or changes in external market conditions that could signal future difficulties.
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| 83. | Senior management must be satisfied that it is fully aware of all activities that have an impact on liquidity and that it operates in accordance with approved policies, procedures, limits and controls.
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| 84. | The liquidity risk management framework must be subject to effective review on an ongoing basis.
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