LM-6.1.1

Where a bank is part of a banking group (local or foreign), the bank must be able to monitor and control liquidity risks arising from intragroup transactions (including cross-border transactions where applicable) with other legal entities in the group, taking into account any legal, regulatory, operational or other constraints on the transferability of liquidity and collateral to and from those entities.

LM-6.1.2

In managing intragroup liquidity risks, banks should understand how their liquidity positions may be affected by liquidity problems faced by other group entities.

LM-6.2.1

Banks must specify in their liquidity risk management strategy the treatment of intragroup liquidity, and assumptions on intragroup dependencies for the purposes of making cash flow projections.

LM-6.2.2

In assessing funding needs (especially under stressed situations), banks should account for any funding or liquidity commitment provided to group entities (e.g. in the form of explicit guarantees or funding lines to be drawn in times of need) and prepare for any withdrawal of funding provided by group entities. Banks should also analyse how the liquidity positions of group entities may affect their own liquidity, either through direct financial impact or through contagion when those entities encounter liquidity strain. Where there is reliance on funding support from group entities, banks should take steps to identify the existence of and take into account any legal, regulatory or other limitations that may restrict their access to liquidity from those entities in case of need.

LM-6.2.3

A bank that has entered into 'back-to-back' transactions⁵ with its group entities must exclude such transactions from cash flow or liquidity calculations, as such transactions usually involve no actual movement of funds and, as such, cannot effectively improve the bank's liquidity.

⁵ These transactions refer to interoffice or intragroup transactions which typically involve two legs, one borrowing long (say, with maturity of more than 1 month) and the other lending short (say, with maturity of 1 month or less). Both legs are for the same or similar amount and at the same or similar rate of interest, and are, in most cases, rolled forward continuously.

LM-6.3.1

Banks must establish internal limits on intragroup liquidity risk to mitigate the risk of contagion from other group entities when those entities are under liquidity stress. Moreover, banks must consider setting stricter internal limits on intragroup funding denominated in foreign currencies where the convertibility and transferability of such funding is not certain, particularly in stressed situations.

LM-6.4.1

Banks should understand potential constraints that may affect intragroup liquidity movements, and specify their assumptions regarding the transferability of funds and collateral in liquidity risk management policies. These assumptions should fully consider regulatory, legal, accounting, credit, tax and internal constraints on the effective movement of liquidity and collateral.

LM-6.4.2

Banks should also consider the operational arrangements needed to transfer funds and collateral across entities and the time required to complete such transfers under these arrangements.