5.2.10.13 Liquidity Risk Monitoring Tools
The Basel III Framework also prescribes five monitoring tools / metrics for better monitoring a bank's liquidity position. These metrics along with their objective and the prescribed returns are detailed below:
- Contractual Maturity Mismatch
The contractual maturity mismatch profile identifies the gaps between the contractual inflows and outflows of liquidity for defined time bands. These maturity gaps indicate how much liquidity a bank potentially need to raise in each of these time bands if all outflows occurred at the earliest possible date. This metric provides insight into the extent to which the bank relies on maturity transformation under its current contracts.
- Concentration of Funding
This metric is meant to identify those sources of funding that are of such significance, the withdrawal of which triggers liquidity problems. The metric thus encourages the diversification of funding sources recommended in the Basel Committee's Sound Principles. This metrics aims to address the funding concentration of banks by monitoring their funding from each significant counterparty, each significant product / instrument and each significant currency.
- Available Unencumbered Assets
This metric provides supervisors with data on the quantity and key characteristics of banks' available unencumbered assets. These assets have the potential to be used as collateral to raise additional secured funding in secondary markets and / or are eligible at central banks.
- Market-related Monitoring Tools
This includes high frequency market data that can serve as early warning indicators in monitoring potential liquidity difficulties at banks.
- Liquidity Coverage Ratio by Significant Currency
This metric provides supervisors with data related to the liquidity indicators of the significant currency at the banks. A currency is considered as significant if the aggregate liabilities denominated in that currency amount to 5% or more of the bank’s total liabilities. This statement includes only those assets and liabilities which includes the contingent liabilities too which are denominated in the specific significant foreign currency.