The social development bank in Europe

Liquidity Risk

Liquidity risk is defined as 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 adopts a prudent approach by maintaining ample liquidity allowing it to withstand potential periods of market disruption without raising funds in the market. The CEB measures its liquidity risk via liquidity gap indicators (the liquidity curve) and steers its short-term liquidity by defining a “self-sufficient period”, i.e. the period for which the Bank is able to fulfil its expected net cash outflow obligations 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. The Bank’s liquidity buffer includes a high proportion of highly liquid assets with strong market and credit characteristics.