• LM-5 LM-5 Maintenance of Liquidity Cushion

    • LM-5.1 LM-5.1 Overview

      • LM-5.1.1

        Banks must maintain an adequate cushion of unencumbered liquid assets that can be readily sold or used as collateral in private markets by a bank to obtain funds to meet the liquidity needs at all times, even in periods of severe idiosyncratic and market stress.

        August 2018

      • LM-5.1.2

        The size of the liquidity cushion should reflect a bank's established risk tolerance, and should be sufficient to meet the bank's liquidity needs in the initial phase of liquidity stress, which is most critical to the bank's survival, taking into account the monetization or borrowing values of the assets included in the cushion under the relevant stressed conditions.

        August 2018

      • LM-5.1.3

        The liquidity cushion should be sized to enable a bank to continue to meet its daily payment and settlement obligations on a timely basis for the period of stress. In doing so, the bank should take into account other available tools and resources to manage intraday liquidity risks.

        August 2018

      • LM-5.1.4

        In addition, the liquidity cushion must at least be sufficient to enable a bank to reach its regulatory LCR.

        August 2018

    • LM-5.2 LM-5.2 Composition of Liquidity Cushion

      • LM-5.2.1

        The liquidity cushion must be largely made up of high quality liquid assets (the most liquid, unencumbered and readily marketable assets such as cash, other high quality government debt securities, etc.) or similar instruments, that can be easily or immediately monetised with little or no loss or discount at all times, irrespective of the bank's own condition.

        August 2018

      • LM-5.2.2

        To cater for any extension or deterioration of any stress situation, a bank may widen the composition of its liquidity cushion by holding other liquid and marketable assets which can be used to cater for the longer end of the stress period (e.g. 1 month or beyond) without resulting in excessive losses or discounts.

        August 2018

      • LM-5.2.3

        A bank must document its policies and criteria for defining the liquid assets to be included in its liquidity cushion and distinguishing their relative levels of quality in terms of their ability to generate liquidity swiftly, with little loss or discount. MIS reports must be in place to facilitate continuous management of a bank's liquidity cushion.

        August 2018