Module: | MODULE B: RISK MANAGEMENT
Q432: Consider the following statements regarding the governance of Liquidity Risk Management and the role of the Board of Directors:
1. The Board of Directors holds the ultimate responsibility for deciding the bank's overall liquidity risk tolerance and strategic direction.
2. The Board must ensure that the bank's executive management effectively translates the defined risk tolerance into specific operational limits.
3. The daily tactical execution of funding strategies, including the exact pricing of deposits, is directly managed by the Board of Directors.
Which of the statements given above is/are correct?
2. The Board must ensure that the bank's executive management effectively translates the defined risk tolerance into specific operational limits.
3. The daily tactical execution of funding strategies, including the exact pricing of deposits, is directly managed by the Board of Directors.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: Under RBI and BIS guidelines, the Board of Directors (BoD) bears the ultimate responsibility for establishing the liquidity risk framework.
They define the bank's overall liquidity risk tolerance and approve the broad strategic direction.
Statement 2 is correct: The BoD acts as a governance checkpoint.
They must ensure that the executive management properly translates the high-level risk tolerance into tangible, measurable operational limits (such as mismatch gap limits and concentration ratios). Statement 3 is incorrect: The daily tactical execution, such as deciding the exact pricing of deposits, determining the incremental asset mix, and executing daily funding strategies, is the direct operational responsibility of the Asset-Liability Management Committee (ALCO), not the Board of Directors.
They define the bank's overall liquidity risk tolerance and approve the broad strategic direction.
Statement 2 is correct: The BoD acts as a governance checkpoint.
They must ensure that the executive management properly translates the high-level risk tolerance into tangible, measurable operational limits (such as mismatch gap limits and concentration ratios). Statement 3 is incorrect: The daily tactical execution, such as deciding the exact pricing of deposits, determining the incremental asset mix, and executing daily funding strategies, is the direct operational responsibility of the Asset-Liability Management Committee (ALCO), not the Board of Directors.