| Principle 1: | | | | The choice of tool to use and the timeframe in which |
| Supervisors should regularly perform a comprehensive | | | | any remedial action is expected to be taken by the |
| assessment of a bank's overall liquidity risk | | | | bank should be proportionate to the level of risk the |
| management framework and liquidity position to | | | | deficiency poses to the safety and soundness of the |
| determine whether they deliver an adequate level of | | | | bank or the relevant financial system(s). |
| resilience to liquidity stress given the bank's role in the | | | | Principle 4: |
| financial system. | | | | Supervisors should communicate with other |
| Supervisors should require that banks: | | | | supervisors and public authorities, such as central |
| (a) have a robust liquidity risk management strategy, | | | | banks, both within and across national borders, to |
| policies and procedures to identify, measure, monitor | | | | facilitate effective cooperation regarding the |
| and control liquidity risk consistent with the principles | | | | supervision and oversight of liquidity risk management. |
| set out in this document; and (b) maintain a sufficient | | | | Communication should occur regularly during normal |
| level of liquidity as insurance against liquidity stress. | | | | times, with the nature and frequency of the |
| Supervisors should have in place a supervisory | | | | information sharing increasing as appropriate during |
| framework which allows them to make thorough | | | | times of stress. |
| assessments of banks' liquidity risk management | | | | Cooperation and information sharing among relevant |
| practices and the adequacy of their liquidity, in both | | | | public authorities, including bank supervisors, central |
| normal times and periods of stress. | | | | banks and securities regulators, as well as deposit |
| Such assessments may be conducted through on-site | | | | insurance agencies, can significantly contribute to the |
| inspections and off-site monitoring and should include | | | | effectiveness of these authorities in their respective |
| regular communication with a bank's senior | | | | roles. |
| management and/or the board of directors. The | | | | Such communication can help supervisors improve the |
| supervisory framework should be publicly available. | | | | assessment of the overall profile of a bank and the |
| Principle 2: | | | | risks it faces, and help other authorities assess the |
| Supervisors should supplement their regular | | | | risks posed to the broader financial system. |
| assessments of a bank's liquidity risk management | | | | For example, supervisors may inform central banks |
| framework and liquidity position by monitoring a | | | | of their judgment regarding the range of liquidity risks |
| combination of internal reports, prudential reports and | | | | faced by firms for which they are responsible, while |
| market information. | | | | central banks may help supervisors deepen their |
| Supervisors should require banks to submit | | | | understanding of the current financial market |
| information on their liquidity positions and risks at | | | | environment and risks to the financial system as a |
| regular intervals. Supervisors also should make use of | | | | whole. |
| market and other publicly available information on | | | | Information on market conditions can be particularly |
| banks. | | | | beneficial for supervisors in their assessment of the |
| The purpose of collecting such data and information | | | | appropriateness of assumptions made by banks in |
| is to assist the supervisor in determining whether | | | | stress test scenarios and contingency funding plans. |
| liquidity risk or pressure is building at a particular bank | | | | In their role as payment and settlement system |
| or banks, as well as to assess the bank's resilience. | | | | overseers, central banks can help supervisors deepen |
| Supervisors may incorporate these data into an early | | | | their understanding of the linkages between |
| warning system to enhance their monitoring of banks' | | | | institutions and the potential for disruptions to spread |
| liquidity risks. | | | | across the financial system. |
| Principle 3: | | | | Central banks and other authorities also can facilitate |
| Supervisors should intervene to require effective and | | | | communication with other, non-regulatory |
| timely remedial action by a bank to address | | | | stakeholders, such as payment and settlement |
| deficiencies in its liquidity risk management processes | | | | system operators. |
| or liquidity position. | | | | Regular dialogue and cooperation among relevant |
| Supervisors should have a range of tools at their | | | | stakeholders during normal times helps to build |
| disposal to address any deficiencies they identify, | | | | working relationships that allow more effective |
| including the authority to compel banks to take | | | | communication and cooperation during times of |
| appropriate remedial action. | | | | firmspecific or market-wide stress. |