FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

Liquidity Risk Monitoring Tools Under BCBS 144

Updated 11 October 2026 · Fact-checked

BCBS 144 covers the LCR and Basel monitoring tools that complement it: contractual maturity mismatch, concentration of funding, available unencumbered assets, LCR by significant currency, and market-related tools. The tools are not pass/fail ratios. They show where liquidity risk is building. Name the tool, read its metric, and state what it signals.

Understand Liquidity Risk Monitoring Tools (BCBS 144)

The Liquidity Coverage Ratio and the Net Stable Funding Ratio are the two Basel III liquidity standards. They are single ratios with minimums. A bank can meet both and still carry liquidity risk that the ratios do not show. BCBS 144 (Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools, January 2013) sets out the LCR and adds a set of monitoring tools that complement it. The NSFR is in a separate document (BCBS 295, 2014).

The tools give supervisors consistent information on a bank's liquidity risk. They do not carry a minimum requirement. They are reported to supervisors, who decide what action to take. Think of them as a dashboard next to the LCR and the wider Basel III liquidity framework.

There are five groups of tools. Contractual maturity mismatch lays out contractual cash inflows and outflows across time bands. It shows the gaps a bank would face if nothing is rolled over. Concentration of funding identifies reliance on a few counterparties, products or currencies. Available unencumbered assets shows assets that are free of legal, regulatory or contractual restrictions and could be pledged to raise secured funding. LCR by significant currency tracks currency mismatches. Market-related monitoring tools use market data such as equity prices, CDS spreads and wholesale funding costs as early signals.

Contractual maturity mismatch uses contractual terms only. It does not apply behavioural assumptions. So it shows the worst-case gap, not the expected one. Cash flows are placed in time bands, and the gap in each band and the cumulative gap are read. Large negative gaps in short bands mean heavy dependence on rolling over funding.

Concentration of funding is measured by counterparty, instrument or product, and currency. The Basel guidance defines a significant counterparty, or a significant instrument or product, as one accounting for more than 1% of the bank's total liabilities. A significant currency is one above 5% of total liabilities. The same 5% definition also sets which currencies the LCR by significant currency tool covers. Available unencumbered assets are reported by amount, type and location, along with the currency of denomination and which can be monetised in practice.

Key formulas to remember

Contractual maturity mismatch (gap): Gap in a time band = contractual inflows − contractual outflows; Negative gap means a funding need in that band. No behavioural assumptions are used. Also read the cumulative gap.
Cumulative gap: Cumulative gap at band n = Σ (gaps from band 1 to band n); Shows how the shortfall builds over time.
Funding concentration ratio: Share = funding from a source ÷ total liabilities; Basel treats a counterparty or instrument/product above 1% of total liabilities as significant, and a currency above 5% as significant. The 5% significant-currency definition also sets which currencies the LCR by significant currency tool covers.
Unencumbered asset test: Available unencumbered assets = assets with no legal, regulatory, contractual or other restriction on being pledged, sold or used; Assets already pledged as collateral are excluded.
Tool list: Maturity mismatch; funding concentration; available unencumbered assets; LCR by significant currency; market-related tools; Monitoring tools, with no minimum standard.

How to solve Liquidity Risk Monitoring Tools (BCBS 144) questions

Quickest way: Match the signal to the tool

When to use it: Use for conceptual or scenario MCQs where you must pick the right tool.

Rollover gaps or timing of cash flows: contractual maturity mismatch.
Reliance on few lenders, products or currencies: concentration of funding.
Ability to raise secured funding: available unencumbered assets.
Foreign-currency shortfalls: LCR by significant currency.
Falling equity price, widening CDS or rising funding cost: market-related tools.
Eliminate options that add behavioural assumptions to the mismatch or set a minimum for any tool.

Common mistakes in Liquidity Risk Monitoring Tools (BCBS 144)

Treating the monitoring tools as minimum requirements like the LCR.
They appear in the same document as the LCR.
Fix: Remember the LCR is a standard. The tools are supervisory information with no minimum.
Applying behavioural assumptions to contractual maturity mismatch.
Students blend it with LCR run-off rates.
Fix: The mismatch uses contractual terms only. Behavioural views belong in stress tests and the LCR.
Counting pledged assets as available unencumbered assets.
Students focus on asset quality, not legal status.
Fix: Remove anything already pledged or restricted before reporting.
Reading only the one-band gap and ignoring the cumulative gap.
Time pressure.
Fix: Add the gaps across bands. A small gap in one band can hide a growing shortfall.
Mixing up the concentration thresholds, such as applying the 5% currency threshold to counterparties or products.
The percentages look alike and both are shares of total liabilities.
Fix: Recall 1% of total liabilities for a significant counterparty or instrument/product, and 5% for a significant currency.
Treating market-related tools as bank-reported balance sheet data.
Other tools come from the bank's own data.
Fix: Market-related tools use market-wide, bank-specific and financial-sector data such as prices and spreads, as early warning signs.

Worked examples

Example 1

A bank reports contractual inflows and outflows (USD million): overnight inflows 200, outflows 500; 2-7 days inflows 300, outflows 400; 8-30 days inflows 600, outflows 450. What is the cumulative gap at the end of the 8-30 day band and what does it signal?

Show the solution

Overnight gap = 200 − 500 = −300.
2-7 days gap = 300 − 400 = −100.
8-30 days gap = 600 − 450 = +150.
Cumulative gap = −300 − 100 + 150 = −250.
The bank is short USD 250 million over 30 days on contractual terms, so it must roll over or raise funding.

Answer: Cumulative gap is −USD 250 million, signalling reliance on rollover or new funding, with the pressure concentrated in the shortest bands.

Example 2

A bank has total liabilities of USD 80 billion. It funds USD 1.2 billion from one corporate depositor and USD 0.5 billion from another. Which counterparties are significant under the 1% rule?

Show the solution

Threshold = 1% × 80 billion = USD 0.8 billion.
First depositor: 1.2 billion is above 0.8 billion, so significant.
Second depositor: 0.5 billion is below 0.8 billion, so not significant.
Shares: 1.2 ÷ 80 = 1.5% and 0.5 ÷ 80 = 0.625%.

Answer: Only the first depositor is a significant counterparty (1.5% of total liabilities). The second (0.625%) is below the 1% threshold, so it is not significant.

Exam tips

Questions often ask which tool fits a described risk. Learn the one-line purpose of each of the five.
Watch for answers that give a tool a minimum ratio. They are wrong.
Contractual mismatch means no behavioural assumptions. This is a favourite trap.
Check whether assets are encumbered before counting them.
Memorise the thresholds as shares of total liabilities: above 1% for a significant counterparty or instrument/product, above 5% for a significant currency.

Practice questions from Liquidity Risk Reporting and Stress Testing

Liquidity Risk Monitoring Tools (BCBS 144): frequently asked questions

What is BCBS 144?

It is the Basel Committee document that sets out the Liquidity Coverage Ratio and the liquidity risk monitoring tools. The tools support supervisors in assessing a bank's liquidity risk.

Do the monitoring tools have minimum requirements?

No. They are reported to supervisors for monitoring. Supervisors decide whether to act, unlike the LCR, which has a minimum.

What does contractual maturity mismatch show?

It shows the gaps between contractual inflows and outflows in time bands. It uses no behavioural assumptions, so it shows the gap if nothing is rolled over.

What are available unencumbered assets?

They are assets free of legal, regulatory, contractual or other restrictions. The bank could use them as collateral to raise secured funding.