46)A bank should employ a range of customized internal measurement tools, or metrics, as there is no single metric that can comprehensively quantify liquidity risk. To obtain a forward looking view of liquidity risk exposures, a bank should use metrics that assess the structure of the balance sheet (e.g. by source and tenor of funding and liquid assets composition) as well as metrics that project cash flows and future liquidity positions, taking into account off-balance sheet risks (liquidity gap reports). These metrics should span vulnerabilities across business-as-usual and stressed conditions over various time horizons.
47)Under business-as usual conditions, the report should identify needs that may arise from projected outflows relative to routine sources of funding. Under stress conditions, the reports should be able to identify funding gaps at various horizons, and in turn serve as a basis for liquidity risk limits and early warning indicators.
48)The scenarios for the reports can be based on assumptions of the future behavior of assets, liabilities and off-balance sheet items, and then used to calculate the cumulative net excess or shortfall over the time frame for the liquidity assessment. Measurement should be performed over incremental time periods to identify projected and contingent flows taking into account the underlying assumptions associated with potential changes in cash flows of assets and liabilities.
49)Management should tailor the measurement and analysis of liquidity risk to the bank’s business mix, complexity and risk profile.
50)A bank should take steps to ensure that its assumptions are reasonable and appropriate, documented and periodically reviewed and approved. They should also be updated in-line with changes observed in the market.