LM-1 LM-1 Prudential information [Version up to 30 September 2007]
LM-1.1 LM-1.1 Introduction [Version up to 30 September 2007]
LM-1.1.1 [Version up to 30 September 2007]
An important element of banking is managing liquidity. Long-term financing contracts may be financed by amounts received from customers for short-term investments. As a result of this, a bank is exposed to the risk that investors' demands for repayment might outstrip its ability to transform assets into cash.
Liquidity risk management reporting under section E of the PIRI [Version up to 30 September 2007]
LM-1.1.2 [Version up to 30 September 2007]
The purpose of this chapter is to introduce the Agency's supervisory approach with respect to reporting requirements and bank's obligations in terms of its liquidity management practices.
LM-1.1.3 [Version up to 30 September 2007]
The contents of this chapter should be read in conjunction with the guidelines set out under Section E of the PIRI (in Appendix BR 3) and PIRI reporting forms (in Appendix BR 4).
LM-1.2 LM-1.2 The bank's prudential obligation [Version up to 30 September 2007]
LM-1.2.1 [Version up to 30 September 2007]
It is the responsibility of the bank's Board of Directors and management to ensure that the bank has sufficient liquidity to meet its obligations as they fall due.
LM-1.2.2 [Version up to 30 September 2007]
A bank must inform the Agency of any concerns it has about its current or future liquidity profile, and of its plans to rectify/deal with any problems.
LM-1.2.3 [Version up to 30 September 2007]
Banks will be expected to have formal written policies which limit liquidity risk to acceptable levels; appropriate liquidity measurement and information systems and clearly defined managerial responsibilities for managing liquidity. These policies, controls and systems are to be observed on a daily basis and reviewed to take account of changing circumstances.
LM-1.3 LM-1.3 The Agency's obligation [Version up to 30 September 2007]
LM-1.3.1 [Version up to 30 September 2007]
The Agency will review with banks their policies, systems and controls for managing their liquidity.
LM-1.3.2 [Version up to 30 September 2007]
Banks are expected to monitor and maintain adequate liquidity not only for meeting the requirements of the unrestricted investment account holders, but also that arising for the restricted investment account holders.
LM-1.3.3 [Version up to 30 September 2007]
The Agency has established the following limits for negative maturity mismatch positions. Positions within such periods should be reported on a monthly basis (see section BR-4):
(i)
Self Financed and Current Accounts Only Period Limit 0-8 days 10% 8 days —1 month 20% (ii)
Unrestricted Investment Period Limit 0-8 days 10% 8 days — 1 month 20% (iii)
Restricted Investment Accounts Only Period Limit 0-8 days 10% 8 days — 1 month 20% (iv)
Self Financed, Restricted/ Unrestricted Investment Accounts & Current Accounts Period Limit 0-8 days 15% 8 days — 1 month 25% LM-1.4 LM-1.4 Liquidity reporting in individual currencies [Version up to 30 September 2007]
LM-1.4.1 [Version up to 30 September 2007]
Section E of the PIRI (Appendix BR 4) should be completed on the basis of all currencies combined.
LM-1.4.2 [Version up to 30 September 2007]
Currencies should be translated into the reporting currency of the bank (which in any case would be either Bahraini Dinar or US Dollar) at the closing spot mid price on the reporting date and entered in the relevant time band. However, the Agency may require institutions to provide management information on positions in individual currencies in the event of difficulties either in the individual institution or with the currency in question.
