Liquidity risk is the risk of loss resulting from the inability to meet payment obligations in full and on time when they become due.
Liquidityrisk is inherent to the Bank's business and results from the mismatch inmaturities between assets and liabilities. It may be related to funding – impossibilityto obtain new funding – and to markets – inability to sell or convert liquidassets into cash without significant losses.
TheCEB manages liquidity risk in a prudent manner, holding a liquidity reserve ofhighly rated liquid securities to cope with periods of extreme marketconditions during which new funding would become inaccessible. The fundingstrategy is an important element of liquidity risk management, with the CEBdiversifying its debt issuance programs, funding markets and investor base toavoid over-reliance on individual markets or funding sources.
TheCEB measures liquidity risk using internal metrics and regulatory indicatorscomplemented by qualitative analysis in line with Baseland EU regulations. It defines its risk appetite based on the SurvivalHorizon metric, which measures the period during which it can meet its paymentobligations arising from ongoing business operations under severe stress scenarios,and also by meeting the regulatory requirements for the Liquidity CoverageRatio and the Net Stable Funding Ratio.
