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  • LM-7.2 LM-7.2 Risk Management Controls

    • LM-7.2.1

      Banks must have effective policies, procedures, systems and controls for managing their intraday liquidity risks in all of the financial markets and currencies in which they have significant payment and settlement activities. Such systems and controls must, among other things, ensure a bank's capacity, to:

      (a) Measure expected daily gross cash inflows and outflows, anticipate the intraday timing of these cash flows where possible, and, as such, forecast the range of potential net funding shortfalls at different time points during the day;
      (b) Monitor intraday liquidity positions against expected activities and available resources (including liquidity balances, remaining intraday credit capacity, and available collateral) and prioritise payments, if necessary; and
      (c) Manage intraday liquidity positions so that there is always sufficient intraday funding to meet the bank's intraday liquidity needs.
      (d) Manage and mobilise collateral as necessary to obtain intraday funds. A bank must have sufficient collateral available to acquire the level of intraday liquidity needed to meet its intraday objectives.
      (e) Manage the timing of its liquidity outflows in line with its intraday objectives. A bank must have the ability to manage the payment outflows of key customers and, if customers are provided with intraday credit that credit procedures must be capable of supporting timely decisions.
      (f) Manage unexpected disruptions to its intraday liquidity flows. A bank's stress testing and contingency funding plans must reflect intraday considerations. A bank also must understand the level and timing of liquidity needs that may arise as a result of the failure-to settle procedures of payment and settlement systems in which it is a direct participant. Robust operational risk management and business continuity arrangements are also critical to the effectiveness of a bank's intraday liquidity management.
      August 2018

    • LM-7.2.2

      Intraday liquidity risk management demands cooperation between the front and back offices, as it typically requires close monitoring of expected payments and direct contacts with customers, where necessary, to quickly verify the reasons for delayed payments. A clear assignment of tasks and responsibilities to personnel involved is, therefore, important, particularly as time-critical decisions need to be made, for instance, to meet the settlement cut-off times.

      August 2018

    • LM-7.2.3

      The tools and resources applied by a bank in managing intraday liquidity risks must be tailored to the bank's business model and role in the financial system. This relates to, for example, whether the bank participates in a payment or settlement system directly or through correspondent or custodian banks, and whether it provides correspondent or custodian services and intraday credit facilities to other banks, firms or systems. If a bank relies heavily on secured funding markets, the bank must have adequate systems and procedures in place to monitor positions in securities settlement systems.

      August 2018