CASE STUDY ON LIQUIDITY RISK MANAGEMENT BY ASHISH SIR
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 66 rapid-fire Q&A cards.
What is liquidity risk in the context of bank financial management?
Liquidity risk is the risk that a bank is unable to meet its financial obligations as they fall due without incurring unacceptable losses. It arises from mismatches between asset and liability maturity profiles.
What is the primary objective of liquidity risk management in a bank?
Ensure bank can meet obligations without significant losses.
What are the two dimensions of liquidity risk?
The two dimensions are funding liquidity risk (inability to raise funds to meet obligations) and market liquidity risk (inability to liquidate assets at fair value without significant price impact).
What is the difference between funding liquidity risk and market liquidity risk?
Funding risk is inability to raise funds; market risk is inability to sell assets.
What is the Liquidity Coverage Ratio (LCR) as prescribed by Basel III?
LCR requires banks to maintain sufficient High Quality Liquid Assets (HQLA) to cover 30 days of net cash outflows under a stress scenario. The minimum LCR requirement is 100%.
What is the minimum LCR requirement mandated by RBI for Indian banks?
100% from January 2019 onwards.
What is the Net Stable Funding Ratio (NSFR) under Basel III?
NSFR requires banks to maintain a stable funding profile over a one-year horizon. It is calculated as Available Stable Funding (ASF) divided by Required Stable Funding (RSF), and must be at least 100%.
What does the term 'stressed outflows' mean in the context of LCR?
Cash outflows assumed under a 30-day stress scenario.
Video classes for this chapter
More chapters in Module B - Risk Management
Master the full BFM syllabus
Every chapter of Bank Financial Management — videos, tests, notes and one-liner decks in one place.