Basel II and Pillar 3 - Liquidity Risk Management and Public Disclosure

Public disclosure improves transparency, facilitatesvalues of those metrics, and balance sheet and
valuation, reduces uncertainty in the markets andoff-balance sheet items broken down into a number
strengthens market discipline. According to the Bankof short-term maturity bands and the resultant
of International Settlements, a bank should disclosecumulative liquidity gaps.
sufficient information regarding its liquidity riskA bank should provide sufficient qualitative discussion
management to enable relevant stakeholders toaround its metrics to enable market participants to
make an informed judgement about the ability of theunderstand them, eg the time span covered,
bank to meet its liquidity needs.whether computed under normal or stressed
A bank should disclose its organisational structure andconditions, the organisational level to which the metric
framework for the management of liquidity risk. Inapplies (group, bank or non-bank subsidiary), and
particular, the disclosure should explain the roles andother assumptions utilised in measuring the bank's
responsibilities of the relevant committees, as well asliquidity position, liquidity risk and liquidity cushion.
those of different functional and business units.A bank should disclose additional qualitative
A bank's description of its liquidity risk managementinformation that provides market participants with
framework should indicate the degree to which thefurther insight into how it manages liquidity risk.
treasury function and liquidity risk management isExamples of qualitative information currently disclosed
centralised or decentralised.by some banks are highlighted below.
A bank should describe this structure with regard toThis list is illustrative rather than exhaustive:
its funding activities, to its limit setting systems, and1. The aspects of liquidity risk to which the bank is
to its intra-group lending strategies.exposed and that it monitors
Where centralised treasury and risk management2. The diversification of the bank's funding sources
functions are in place, the interaction between the3. Other techniques used to mitigate liquidity risk
group's units should be described. The objective for4. The concepts utilised in measuring its liquidity
the business units in the organisation should also beposition and liquidity risk, including additional metrics
indicated, for instance, the extent to which they arefor which the bank is not disclosing data
expected to manage their own liquidity risk.5. An explanation of how asset market liquidity risk is
As part of its periodic financial reporting, a bankreflected in the bank's framework for managing
should provide quantitative information about itsfunding liquidity
liquidity position that enables market participants to6. An explanation of how stress testing is used
form a view of its liquidity risk.7. A description of the stress testing scenarios
Examples of quantitative disclosures currentlymodelled
disclosed by some banks include information regarding8. An outline of the bank's contingency funding plans
the size and composition of the bank's liquidityand an indication of how the plan relates to stress
cushion, additional collateral requirements as the resulttesting
of a credit rating downgrade, the values of internal9. The bank's policy on maintaining liquidity reserves
ratios and other key metrics that management10. Regulatory restrictions on the transfer of liquidity
monitors (including regulatory metrics that may existamong group entities.
in the bank's jurisdiction), the limits placed on the11.