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    LR 3

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    abhinav Mishra
    The document discusses potential liquidity risk drivers for banks, including internal factors like high off-balance sheet exposures and reliance on short-term deposits, as well as external factors like economic shocks. It also outlines types of liquidity risk such as funding and market liquidity risk, and principles for sound liquidity risk management established by the Basel Committee.

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    LR 3

    Uploaded by

    abhinav Mishra
    9 views1 page
    The document discusses potential liquidity risk drivers for banks, including internal factors like high off-balance sheet exposures and reliance on short-term deposits, as well as external factors like economic shocks. It also outlines types of liquidity risk such as funding and market liquidity risk, and principles for sound liquidity risk management established by the Basel Committee.

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    in depth

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    lr3

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    The document discusses potential liquidity risk drivers for banks, including internal factors like high off-balance sheet exposures and reliance on short-term deposits, as well as external factors like economic shocks. It also outlines types of liquidity risk such as funding and market liquidity risk, and principles for sound liquidity risk management established by the Basel Committee.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    9 views1 page

    LR 3

    Uploaded by

    abhinav Mishra
    The document discusses potential liquidity risk drivers for banks, including internal factors like high off-balance sheet exposures and reliance on short-term deposits, as well as external factors like economic shocks. It also outlines types of liquidity risk such as funding and market liquidity risk, and principles for sound liquidity risk management established by the Basel Committee.

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    © All Rights Reserved
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    of 1

    (v) The efficacy of the processes in place to ensure successful execution of

    the solutions in times of need.

    3. Potential Liquidity Risk Drivers:

    The internal and external factors in banks that may potentially lead to liquidity
    risk problems in Banks are as under:
    Internal Banking Factors External Banking Factors
    High off-balance sheet exposures. Very sensitive financial markets
    depositors.
    The banks rely heavily on the short- External and internal economic shocks.
    term corporate deposits.
    A gap in the maturity dates of assets Low/slow economic performances.
    and liabilities.
    The banks’ rapid asset expansions Decreasing depositors’ trust on the
    exceed the available funds on the banking sector.
    liability side
    Concentration of deposits in the short Non-economic factors
    term Tenor
    Less allocation in the liquid government Sudden and massive liquidity
    instruments. withdrawals from depositors.
    Fewer placements of funds in long-term Unplanned termination of government
    deposits. deposits.

    4. Types of Liquidity Risk:

    Banks face the following types of liquidity risk:

    (i) Funding Liquidity Risk – the risk that a bank will not be able to meet efficiently
    the expected and unexpected current and future cash flows and collateral
    needs without affecting either its daily operations or its financial condition.
    (ii) Market Liquidity Risk – the risk that a bank cannot easily offset or eliminate a
    position at the prevailing market price because of inadequate market depth or
    market disruption.

    5. Principles for Sound Liquidity Risk Management:

    After the global financial crisis, in recognition of the need for banks to improve
    their liquidity risk management, the Basel Committee on Banking Supervision
    (BCBS) published “Principles for Sound Liquidity Risk Management and

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