Net Funding Gaps
LM-2.5.6
In order to meet their obligations as they fall due and thereby stay in business, banks need to ensure:
(a) Positive cash-flow position is maintained; or(b) Sufficient cash can be generated from their assets; or(c) Adequate funding sources to cover their funding gaps promptly.August 2018LM-2.5.7
Net funding gaps can be assessed through the construction of a maturity profile, supplemented where relevant with additional analysis of the funding capacity of specific on- or off-balance sheet items.
August 2018LM-2.5.8
A bank's maturity profile should encompass adequate time bands so that the bank can monitor its liquidity needs for various time horizons. It is generally expected to have daily time bands in the very short term (say for a period of 5 to 7 days ahead), which may be followed by wider and less granular time bands for other periods.
August 2018LM-2.5.9
Banks must set internal limits to control the size of their cumulative net mismatch positions (i.e. where cumulative cash inflows are exceeded by cumulative cash outflows), at least for the shorter-term time bands (e.g. next day, 5 to 7 days ahead, 14 days, 1, 2, 3, 6 and 9 months). Such limits must be in line with the established liquidity risk tolerance, and must take into account the potential impact of adverse market conditions on the bank's funding capacity. Maturity mismatch limits must also be imposed for individual foreign currencies in which a bank has significant positions.
August 2018LM-2.5.10
The maturity mismatch limits must be properly documented in the Liquidity Risk Management Policy statement. Banks must regularly review the suitability of such limits.
August 2018
