A type of macroprudential instrument that comes under two different subcategories: capital requirement regulations (CRR), mainly liquidity requirements (reserve requirements) and large exposure limit (including intra-financial sector), and other tools such as LCR requirements, LTD ratio caps (caps on loan-to-deposit ratios), and non-stable funding levy, (net stable funding ratio, NSFR), etc.
As part of the macroprudential instruments/ tools, borrowed-based instruments primarily account for the build-up of liquidity risk and foreign-exchange risk associated with lending expansion/ booms.
Overall, such instruments aim to boost the resilience of a bank by keeping liquidity under checks and balances and regular review. Specifically, the objective is to address risks originating from maturity mismatches in a bank’s balance sheets. The liquidity coverage ratio (LCR) is by nature a short-term liquidity measure, and the net stable funding ratio (NSFR) usually addresses longer-term liquidity risks.
These instruments are also known as liquidity-related tools.
