Liquidity, or the ability to fund increases in assets and meet obligations as they come due, is crucial to the ongoing viability of any banking organization. Therefore, managing liquidity is among the most important activities conducted by banks. Sound liquidity management can reduce the probability of serious problems.
So, banks must visualize and evaluate
liquidity needs under different business scenarios. Liquidity represents
the
ability to deal with shortage of funds and
surplus of funds. Irrespective of size of a bank, adequate liquidity is essential to
meet commitments when due and to undertake new transaction when desirable.
Considering the importance of managing liquidity risk, each bank is required to
have a suitable policy in this regard which must cover objectives of liquidity
management, framework for assessing and managing
liquidity, funding strategies and internal norms including delegation of authority etc.