Liquidity risk is the risk of incurring losses resulting from the inability to meet payment obligations in a timely manner when they become due or from being unable to do so at a sustainable cost. Liquidity management plays a crucial role in safeguarding financial flexibility irrespective of the market conditions.
The Bank measures its liquidity risk via liquidity gap indicators (the liquidity curve). The Bank steers its short-term liquidity by defining a “self-sufficient period”, namely the period for which the Bank is able to fulfil its expected net cash outflows stemming from on-going business operations without access to the market for new funding or the sale of assets.
Furthermore, the Bank defines medium-term indicators and holds a liquidity reserve or buffer in an effort to ensure sufficient liquidity to meet its needs in stressed financial conditions.
In order for the liquidity buffer to retain its value in case of a severe market disruption, the Bank ensures that it contains a high proportion of highly liquid assets with strong market and credit characteristics.
Lastly, the CEB pursues compliance with Basel liquidity ratios even though it is not subject to the regulatory framework.