Liquidity management
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is liquidity management in the context of banking?
Liquidity management refers to a bank's ability to meet its financial obligations as they fall due without incurring unacceptable losses. It involves maintaining adequate liquid assets and managing cash flows to ensure operational continuity.
What is the difference between asset liquidity and funding liquidity?
Asset liquidity is ease of selling assets; funding liquidity is ease of borrowing.
What is the primary objective of liquidity management for banks?
The primary objective is to ensure that the bank can meet all its payment obligations on time, both expected and unexpected, while minimising the cost of holding liquid assets.
What is meant by 'liquidity hoarding' by banks during financial stress?
Banks accumulate excess liquid assets instead of lending to others.
What does the Liquidity Coverage Ratio (LCR) measure?
LCR measures a bank's ability to withstand a 30-day stress scenario by holding High Quality Liquid Assets (HQLA) sufficient to cover net cash outflows over that period. It must be at least 100% under Basel III norms.
What is the 30-day stress scenario used in LCR calculation?
Banks must survive 30-day period of severe liquidity stress without external support.
What is the Net Stable Funding Ratio (NSFR)?
NSFR is a Basel III metric that requires banks to maintain stable funding (Available Stable Funding) in excess of required stable funding (Required Stable Funding) over a one-year horizon, ensuring long-term resilience.
What is the 'survival period' concept in liquidity risk management?
The time a bank can survive without accessing external funding markets.
Video classes for this chapter
More chapters in Module D - Balance Sheet Management
Related articles & notes
In-depth Bank Financial Management guides from our blog.
Master the full BFM syllabus
Every chapter of Bank Financial Management — videos, tests, notes and one-liner decks in one place.