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Bank Supervision | Supervisory Review and Evaluation Process (SREP)

Analysis of Risks to the Bank's Liquidity

The SREP includes the analysis of risks to liquidity. The main risks impacting liquidity are market liquidity risk and funding risk.

The assessment of the main risks which impact liquidity is conducted in three steps:

  1. assessment of the level of market liquidity risk;
  2. assessment of the level of funding risk; and
  3. assessment of management of market liquidity risk and funding risk.

When assessing the market liquidity risk and funding risk, the supervisor verifies the bank’s compliance with minimum regulatory requirements.

In order to produce a comprehensive assessment of the market liquidity risk and funding risk, the supervisor assesses whether an adequate risk management system has been set up, particularly: the liquidity risk management strategy and appetite for and/or tolerance to liquidity risk, organisational structure, policies, procedures and other internal acts, the process of identification, measurement and reporting on liquidity risk, stress testing of liquidity risk conducted by the bank, the system of internal controls and contingency plan.

Based on the conducted assessment, the supervisor determines a score, ranging from 1 (considering the level of the market liquidity risk/funding risk and the system of management and controls pertaining to that risk, there is no material risk to the bank) to 4 (considering the level of market liquidity risk/funding risk and the system of management and controls pertaining to that risk, the bank is highly exposed to that risk).