A liquidity-related tool is a type of macroprudential instrument (macroprudential tool) 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.
The main objectives of liquidity-related tools are manifested in the limits or restrictions imposed on certain areas relating to banks’ liquidity and liquidity positions, as well as specific requirements as to funding and taxes:
- Limits on net currency position or net currency mismatch;
- Limits on maturity mismatch;
- Limits on funding gaps,
- Core funding requirements; and
- Prudential stability levies/ taxes.
