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In order to mitigate cliff effects that could arise, if an eligible liquid asset became ineligible (e.g. due to rating downgrade), an institution is permitted to keep such assets in its stock of liquid assets for an additional 30 calendar days. This would allow the institution additional time to adjust its stock as needed or replace the asset.
OSFI Principle #7 (BCBS Principle #12): An institution should maintain a cushion of unencumbered, high quality liquid assets to be held as insurance against a range of liquidity stress scenarios, including those that involve the loss or impairment of unsecured and typically available secured funding sources. There should be no legal, regulatory ...
Examples of liquid assets generally include central bank reserves and government bonds. To remain viable and avoid insolvency, a bank needs to have enough liquid assets to meet withdrawals by depositors and other obligations that fall due in the near term.
Jan 31, 2022 · Collectively, OSFI’s guidelines related to capital, leverage, liquidity, and disclosure requirements are essential to preserving financial resilience, thereby protecting depositors and creditors, and contributing to Canadians’ confidence in the stability of the financial system.
- Introductionnote de Bas de Page 1
- Liquidity Risk
- Sound and Prudent Liquidity Risk Management
- Assessment of Liquidity Adequacy
- Mitigation of Liquidity Risk
- Crisis Management
Liquidity is critical to the ongoing viability of any financial institution. Poor management of liquidity risk can lead to undue financing costs and difficulty liquidating assets at fair value. This risk may be greater if a financial institution’s reputation is damaged. Similarly, a financial institution’s capitalization can impact its ability to o...
Liquidity refers to a financial institution’s ability to meet its current and anticipated financial obligations as they come due, without disrupting its operations and without incurring substantial losses. Accordingly, liquidity risk results from a financial institution’s difficulty or inability to meet its liquidity obligations in a timely manner ...
This A document that describes the steps that financial institutions can take to satisfy their legal obligation to follow sound and prudent management practices and sound commercial practices. favours a principles-based approach and does not impose quantitative requirements regarding ratios or thresholds. Under this approach, the AMF expects financ...
Financial institutions should critically assess their level of liquidity and their future needs based on their risk profile and business plans. The implementation of an internal liquidity adequacy assessment process should allow them to maintain their liquidity at adequate levels on an ongoing basis.
4.1 Diversification of funding sources
A financial institution should avoid any potential concentration of certain sources of funding. To this end, the financial institution should analyze the various characteristics of its liabilities and their impact on its liquidity position in light of the following: 1. maturities of liabilities and their A measure of the variability of the price of an asset.; 2. percentage of holdings of secured and unsecured funding; 3. reliance on: 3.1. a single provider of funds or on a related group of pr...
4.2 Market access
A financial institution should ensure that it has opportunities to borrow or issue debt An interest in or charge on property taken by a creditor or guarantor to secure the payment or performance of an obligation. on the market if necessary, even during a crisis. The financial institution should also expand its funding opportunities and develop solid and lasting relationships with funds providers. The financial institution should be able to assess its ability to obtain funding in local currenc...
4.3 Management of foreign currency liquidity risk
The financial institution could use foreign currency deposits or loans in order to fund a portion of its liquidity requirements in local currency or foreign currencies. The financial institution could also convert liquidity in local currency in order to meet foreign currency liquidity needs. In both cases, it should take the following factors into consideration: 1. the convertibility of each currency, the A measure of the variability of the price of an asset.of the exchange rate, and the dela...
5.1 Contingency plan
The principal objective of the contingency plan should be to identify and document the various processes to be implemented and steps to be taken in order to manage a liquidity crisis effectively and efficiently. The results of the scenario analyses and stress tests should be incorporated into the contingency plan. These results should be used as the basis for identifying the various crises that could affect the financial institution’s liquidity and estimating their severity. The financial ins...
Aug 22, 2024 · The LCR mandates banks to hold high-quality liquid assets that can be readily converted to cash to meet their net cash outflows over a 30-day stress-test scenario, while the NSFR requires banks...
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Mar 22, 2021 · Updated March 22, 2021. The Liquidity Coverage Ratio and the Net Stable Funding Ratio. Issue Overview. Federal bank regulators have issued final rules implementing the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) for large banks. This In Focus explains the rationale behind these liquidity rules and how they work. Liquidity
