Module: | MODULE B: RISK MANAGEMENT
Q438: Consider the following statements regarding the Dynamic Liquidity Statement prepared by commercial banks:
1. The Dynamic Liquidity Statement is specifically designed to track and monitor the short-term liquidity position of a bank over a continuous 90-day horizon.
2. Unlike the Structural Liquidity Statement, the Dynamic Liquidity Statement focuses entirely on daily operational cash flows rather than long-term asset maturity profiles.
3. Reserve Bank of India guidelines stipulate that the Dynamic Liquidity Statement must only be prepared once a year alongside the annual financial audit.
Which of the statements given above is/are correct?
2. Unlike the Structural Liquidity Statement, the Dynamic Liquidity Statement focuses entirely on daily operational cash flows rather than long-term asset maturity profiles.
3. Reserve Bank of India guidelines stipulate that the Dynamic Liquidity Statement must only be prepared once a year alongside the annual financial audit.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: The Dynamic Liquidity Statement is a specialized internal risk management tool explicitly engineered to track, monitor, and manage a bank's short-term liquidity position continuously over a rolling 90-day horizon.
Statement 2 is correct: While the Structural Liquidity Statement (SLS) maps the entire balance sheet to analyze long-term structural asset-liability maturity mismatches, the Dynamic Liquidity Statement is tactical.
It strictly focuses on managing daily operational cash flows, anticipated short-term borrowings, and immediate funding volatility.
Statement 3 is incorrect: Given its focus on short-term daily survival, compiling the Dynamic Liquidity Statement only once a year is conceptually absurd.
RBI guidelines require banks to compile and monitor this statement with extreme high frequency—typically on a daily or fortnightly basis—to support ALCO's immediate tactical decisions.
Statement 2 is correct: While the Structural Liquidity Statement (SLS) maps the entire balance sheet to analyze long-term structural asset-liability maturity mismatches, the Dynamic Liquidity Statement is tactical.
It strictly focuses on managing daily operational cash flows, anticipated short-term borrowings, and immediate funding volatility.
Statement 3 is incorrect: Given its focus on short-term daily survival, compiling the Dynamic Liquidity Statement only once a year is conceptually absurd.
RBI guidelines require banks to compile and monitor this statement with extreme high frequency—typically on a daily or fortnightly basis—to support ALCO's immediate tactical decisions.