Liquidity is the ability of a financial institution to fund assets and meet obligations as they come due. The fundamental role of financial institutions in the maturity transformation of short-term deposits into long-term loans or financing makes financial institutions inherently vulnerable to liquidity risk, both of institution-specific nature and that which affects financial markets as a whole.Effective liquidity risk management therefore helps ensure a financial institution is able to meet its cash flow obligations at all times.
This policy document sets out Bank Negara Malaysia’s (the Bank) requirements and guidance on the management of liquidity risk to ensure that financial institutions are effective in assessing their exposures to liquidity risk and take appropriate measures to address their liquidity needs. This policy document has been developed based on the Principles for Sound Liquidity Risk Management and Supervision by the Basel Committee for Banking Supervision (BCBS)0F1 and the Guiding Principles on Liquidity Risk Management for Institutions Offering Islamic Financial Services1F2 by the Islamic Financial Services Board (IFSB). The requirements and guidance set out in this policy document also complement the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) policy documents which set out minimum regulatory liquidity requirements.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
