Liquidity and Funding in Resolution

A potential impediment to the orderly resolution of an authorized institution (AI) relates to its inability to assess its liquidity and funding needs and access funding in resolution.  The Financial Stability Board has identified liquidity and funding as important topics to be addressed in resolution planning and has issued publications on the topic including its guidance on the Funding Strategy Elements of an Implementable Resolution Plan, complementing the Key Attributes of Effective Resolution Regimes for Financial Institutions and the Guiding Principles on the temporary funding needed to support the orderly resolution of a Global Systemically Important Bank.  In support of this aspect of resolvability, an AI is expected to have in place the capabilities and arrangements to support the timely measurement, monitoring and reporting of its liquidity and funding needs in resolution and the timely identification and mobilisation of various types of unencumbered assets which may be used as collateral for third-party funding in resolution.

LFIR-1 “Resolution Planning – Liquidity and Funding in Resolution” is a chapter of the code of practice issued by the Monetary Authority (MA) under the Financial Institutions (Resolution) Ordinance (Cap. 628). The chapter sets out the MA’s expectations as to the capabilities and arrangements that an AI should have in place, in business as usual, in order to support its ability to meet liquidity and funding needs in resolution.