Sound practices for managing liquidity in banking organisations

Principle 11: Subject to the analysis undertaken according to Principle 10, a bank
should, where appropriate, set and regularly review limits on the size of its cash flow
mismatches over particular time horizons for foreign currencies in aggregate and for
each significant individual currency in which the bank operates.
79.
Banks should analyse the likely impact of different stress scenarios on their
liquidity position, broken down by currency. This is particularly important for positions in
currencies that are not highly liquid, though it should be borne in mind that, under stressful
conditions, even apparently stable and liquid currencies may not be easily convertible to repay
foreign currency deposits. Banks should reach a judgement on which currencies should be
subject to individual limits, and regularly review the approach. Supervisors may have input
into this process.
80.
A bank would typically have lower mismatches for foreign currency liquidity than
those tolerated for the domestic currency. The size of foreign currency mismatches should
take into account the bank’s ability to raise funds in foreign currency markets and the likely
extent of foreign currency back-up facilities available in its domestic market.
IV.
Internal Controls for Liquidity Risk Management
Principle 12: Each bank must have an adequate system of internal controls over its
liquidity risk management process. A fundamental component of the internal control

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Liquidity
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system involves regular independent reviews and evaluations of the effectiveness of the
system and, where necessary, ensuring that appropriate revisions or enhancements to
internal controls are made. The results of such reviews should be available to