Liquidity risk management
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is liquidity risk in the context of banking?
Liquidity risk is the risk that a bank will be unable to meet its financial obligations as they fall due without incurring unacceptable losses. It arises when a bank cannot convert assets into cash quickly enough to meet deposit withdrawals or loan demands.
What is funding liquidity risk in banking?
Risk of inability to meet obligations as they fall due.
What are the two main types of liquidity risk faced by banks?
The two main types are funding liquidity risk (inability to raise funds to meet obligations) and market liquidity risk (inability to liquidate assets at fair prices without significantly impacting the market price).
What is market liquidity risk in the context of asset liquidation?
Risk of unable to sell assets without significant price discount.
What is the role of the Asset-Liability Management Committee (ALCO) in liquidity risk management?
ALCO is responsible for overseeing the bank's liquidity position, setting internal liquidity limits, approving liquidity contingency plans, and ensuring the bank maintains adequate liquidity buffers in line with RBI guidelines.
What minimum LCR ratio must Indian banks maintain as per RBI?
Banks must maintain LCR of at least 100%.
What is the Liquidity Coverage Ratio (LCR) as prescribed by RBI?
LCR is the ratio of a bank's High Quality Liquid Assets (HQLA) to its total net cash outflows over a 30-day stress period. RBI mandates banks to maintain LCR of at least 100% to ensure short-term resilience against liquidity stress.
What time horizon does the LCR stress scenario cover?
LCR covers a 30-day stress scenario.
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