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LM-2.1.2

Banks must use a range of liquidity metrics for identifying, measuring and analysing liquidity risk. These metrics must enable the management to understand its day-to-day liquidity positions and structural liquidity mismatches, as well as its resilience under stressed conditions. In particular, these metrics must perform the functions of:

(a) Ensuring compliance with statutory liquidity requirements;
(b) Projecting the bank's future cash flows and identifying potential funding gaps and mismatches under both normal and stressed conditions over different time horizons;
(c) Evaluating potential liquidity risks inherent in the bank's balance sheet structure and business activities, including the liquidity risks that may arise from any embedded options and other contingent exposures or events;
(d) Assessing the bank's capability to generate funding, as well as its vulnerability to, or concentration on, any major source of funding;
(e) Identifying the bank's vulnerabilities to foreign currency movements; and
(f) Identifying market related information.
August 2018