Banks Act, 1990 (Act No. 94 of 1990)RegulationsRegulations relating to BanksChapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof26. Liquidity riskLiquidity risk - Directives, definitions and interpretations for completion of monthly return concerning liquidity risk (Form BA 300)Subregulation (10) Matters relating to a bank-specific stress mismatch |
| (10) | Matters related to a bank-specific stress mismatch |
A bank—
| (a) | shall obtain the prior written approval of its board of directors or board approved committee in respect of any going-concern behavioural or other relevant assumption and reasoning applied in respect of the bank-specific stress mismatch; |
| (b) | shall on request submit to the Registrar all relevant board approved assumptions and reasoning applied in respect of the bank-specific stress mismatch; |
| (c) | shall have in place sufficiently robust early warning indicators to identify the emergence of increased risk or vulnerabilities in its liquidity position or funding needs; |
| (d) | shall regularly perform robust liquidity stress tests or scenario analyses, which stress tests or scenario analyses shall be based on the bank's relevant strategic and business plans— |
| (i) | in order to ensure that— |
| (A) | the bank has in place an adequate framework that satisfactorily accounts for the liquidity risk inherent in its individual products and business lines; |
| (B) | the bank estimates and understands the potential behavioural aspects related to the repayment of assets and the withdrawal of deposits under a bank specific stress scenario; |
| (C) | the bank duly identifies the potential sources of liquidity strain; |
| (D) | the bank's incentives at business level are aligned with the overall risk tolerance of the bank; |
| (E) | the bank duly considers the amount of liquidity it may need to satisfy contingent obligations; |
| (F) | the bank duly considers and understands the potential impact of any plausible severe and prolonged liquidity disruption; |
| (ii) | in order to identify and quantify the bank's exposure to possible future liquidity stresses; |
| (iii) | to analyse possible impacts on the bank's cash flows, liquidity positions, profitability, and solvency; |
| (iv) | the results of which stress tests or scenario analyses— |
| (A) | shall be thoroughly discussed and understood by the bank's senior management; |
| (B) | shall form the basis for taking remedial or mitigating action— |
| (i) | to limit the bank's liquidity exposure; |
| (ii) | to timely build up a liquidity cushion; |
| (iii) | to timely adjust the bank's liquidity profile according to the bank's risk tolerance approved by the bank's board of directors; |
| (C) | shall be appropriately linked to and play a key role in shaping the bank's contingency funding plan, which, among other things, shall outline policies for managing a range of stress events and clearly set out strategies for addressing liquidity shortfalls in emergency situations; |
| (e) | shall duly document any related policies, procedures and underlying workings in respect of its relevant stress mismatch; |
| (f) | shall report the bank-specific stress mismatch on a static gap basis. |