Bank supervisors endorse principles for liquidity risk management and supervision
25 September 2008
The principles underscore the importance of establishing a robust liquidity risk management framework that is well integrated into the bank-wide risk management process.
The principles underscore the importance of establishing a robust liquidity risk management framework that is well integrated into the bank-wide risk management process. Key elements of a bank's governance of its liquidity risk management are also emphasised. The document also sets out the principles to strengthen the measurement and management of their liquidity risk.
Among other things, a bank should:
- conduct regular stress tests for a variety of short-term and protracted institution-specific and market-wide stress scenarios and use the outcomes to develop robust and operational contingency funding plans;
- ensure the alignment of risk-taking incentives of individual business lines with the liquidity risk exposures the activities create;
- actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions, and thus contribute to the smooth functioning of payment and settlement systems; and
- maintain a cushion of unencumbered, high quality liquid assets as insurance against a range of stress scenarios.
The principles discuss the key role of regular public disclosure and of supervisors. They stress the need for regular communication with other supervisors and public authorities, both within and across national borders.
The guidance focuses on liquidity risk management at medium and large complex banks. The implementation of the sound principles by both banks and supervisors should be tailored to the size, nature of business and complexity of a bank's activities.
Press release
Principles for sound lLiquidity risk management and supervision
© BIS - Bank for International Settlements
