Liquidity risk can be defined as the potential risk that an organization will be unable to meet its obligations as they become due. FMO’s liquidity policy sets out a 4 pillar approach to address this risk. Firstly, it ensures that the bank has sufficient cash, liquidity buffers and access to emergency lines to survive a stress period of 6 months. Secondly, it ensures that as a rule we match-fund the maturity of our liabilities with the maturity of our assets, so as to largely avoid refinancing risk. Thirdly, we ensure that our funding sources are well diversified in terms of geography and instrument type. And fourthly, we maintain a minimum Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Levels of these ratios are already comfortably above the new requirements of Basel III that are expected to be put in place by regulator in the coming years.
All requirements within the 4 pillars have been realized. Given our high credit rating (currently AAA), access to funding has not been a problem for FMO, but since the start of the crisis we have experienced an increase in our average cost of funding. This is in line with the experience of our European peers and other Dutch commercial banks.