![]() ![]() An institution should establish a robust liquidity risk management framework that ensures it maintains sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to withstand a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. OSFI Principle #1 (BCBS Principle #1): An institution is responsible for the sound management of liquidity risk. OSFI recognizes that institutions have different liquidity risk management practices depending on their: size organizational structure nature, scope, and complexity of operations corporate strategy and risk profile. This expectation is in line with the fundamental principle for the management of liquidity risk noted below. OSFI expects all institutions to maintain the infrastructure and risk management control function capacity to identify, measure, manage and monitor liquidity risk exposures under hypothetical stressed outcomes and maintain structurally sound funding and liquidity profiles. ![]() This guideline should be read in conjunction with OSFI's Liquidity Adequacy Requirements (LAR) Guideline, which contains the methodology underpinning a series of quantitative standards and liquidity metrics used by OSFI to assess the liquidity adequacy of an institution. This guideline Footnote 1 describes some of the elements that will be considered by supervisors in assessing the strength of an institution's liquidity risk management framework and describes some of the information that will be used to assess liquidity adequacy as appropriate to the scale, complexity and function of the institution. Liquidity risk is the potential for losses to be incurred from holding insufficient liquidity to survive a contingent stress event, whether name-specific or market-wide in origin. Liquidity refers to the capacity of an institution to generate or obtain sufficient cash or its equivalent in a timely manner at a reasonable price to meet its commitments as they fall due and to fund new business opportunities as part of going-concern operations. Notwithstanding that a bank, a bank holding company or a trust and loan company may meet these standards, the Superintendent may by order direct a bank or bank holding company to take actions to improve its liquidity under subsection 485(3) or 949(3), respectively, of the BA or direct a trust and loan company to take actions to improve its liquidity under subsection 473(3) of the TLCA. However, the liquidity risk management principles set out in this guideline provide the framework within which the Superintendent assesses the content and effectiveness of the liquidity risk management of a bank, bank holding company or a trust and loan company and whether that risk management program is producing adequate and appropriate forms of liquidity pursuant to the Acts. Subsection 485(1) and 949(1) of the Bank Act (BA) and subsection 473(1) of the Trust and Loan Companies Act (TLCA) require banks, bank holding companies, and trust and loan companies, respectively, to maintain adequate and appropriate forms of liquidity. In this Guideline, the term "institution" means banks, all federally regulated trust and loan companies, and bank holding companies. This Guideline sets out prudential considerations relating to the liquidity risk management programs of federally regulated deposit-taking institutions and bank holding companies.
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