A contingency funding plan sets how a firm would respond to a liquidity stress: early warning indicators, escalation, roles and the funding actions available, such as selling liquid assets, repo or central bank facilities. It is tested regularly and reviewed in the ILAAP.
Liquidity gap (maturity ladder)A liquidity gap compares expected cash inflows and outflows in time buckets, from overnight to several years, to show when a firm would run short of funding. The cumulative gap, together with the liquidity buffer, gives the survival horizon under stress.
Asset encumbranceAn asset is encumbered when it is pledged or otherwise committed, for example as collateral in repo, covered bonds or derivatives margin, so it cannot be freely sold or used for new funding. Banks report the encumbrance ratio and monitor it in liquidity planning.
ILAAP (Internal Liquidity Adequacy Assessment Process)The ILAAP is a bank's own process for identifying, measuring and managing its liquidity and funding risks and assessing whether its liquidity buffers and funding profile are adequate, including under stress. It is required by Article 86 of the CRD and feeds into the SREP.
HQLA (High-quality liquid assets)High-quality liquid assets are assets that can be turned into cash quickly in private markets with little loss of value, such as central bank reserves and top-rated government bonds. They are split into Level 1, 2A and 2B, with haircuts and caps, and form the numerator of the LCR.
Early warning indicators (credit)Early warning indicators are signals that a borrower's credit quality is weakening before default, such as overdraft excesses, missed covenants, rating downgrades, falling turnover or negative news. Triggered cases go to a watchlist for closer review and action.
Repo (Repurchase agreement)A repurchase agreement (repo) is a sale of securities together with an agreement to buy them back at a set price on a later date. Economically it is a secured loan: the seller borrows cash, the buyer lends it and holds the securities as collateral, with the price difference representing the repo rate.
ILAAP (Internal Liquidity Adequacy Assessment Process)The ILAAP is a bank's own process for identifying, measuring and managing its liquidity and funding risks and assessing whether its liquidity buffers and funding profile are adequate, including under stress. It is required by Article 86 of the CRD and feeds into the SREP.