IBRC annual report for 2011 - Irish Bank Resolution Corporation ...

Notes to the financial statements continued50. Risk management continuedLiquidity and funding risk continuedPoliciesThe Group Liquidity Policy details the Bank’s risk policy relating to all funding and liquidity matters. The policy documentarticulates the Risk Appetite as set and approved by the Board and how ALCO manages this within the agreed parameters.The policy document formally describes the liquidity governance structure and control framework to monitor and controlliquidity risk within the Group.The Group Liquidity Policy is monitored by Group Risk but owned by ALCO which has delegated responsibility for liquiditymanagement from the Board.Strategies and processesALCO is responsible for structural liquidity risk management and provides regular formal updates to the Risk and ComplianceCommittee and the Board.Operational liquidity risk is short term liquidity risk, ranging from intra-day to one month. Execution of the Group's short termoperational liquidity strategy and cash flow management on a daily and real time intra-day basis is the responsibility of theFinancial Markets team, operating within policy set by ALCO.Structural liquidity risk is managed under the guidelines set out in the Group Liquidity Policy. GBSM and Group Risk provideupdates to ALCO on the structural liquidity and funding position both on a current and forward looking basis.The structural liquidity risk has been materially altered by the deposit transfer transaction in February 2011 and the USdollar/euro foreign exchange swap agreements. The deposit transfer has significantly reduced the amount of customer depositliabilities and reduced the amount of NAMA bonds on the Bank's balance sheet. This has led to an increase in the nominalamount of, and the future reliance on, liquidity assistance from the Central Bank of Ireland. The INBS merger on 1 July 2011increased this liquidity assistance by €6bn.Reporting and measurement systemsLiquidity risk is measured using the cash flow mismatch approach where cash inflows and outflows are analysed to produce anet cash flow position over set time periods. Cash outflows are assumed to be paid at the earliest time period and cash inflowsto be received at the latest potential time period.Separate liquidity cash flow limits are in place for the management of liquidity in non-euro currencies ensuring foreign currencycash flow exposure is managed within approved risk tolerance limits.Contractual undiscounted cash flowsThe following tables present the cash flows payable by the Group under financial liabilities, and under contingent liabilities andcommitments which are not recognised in the statement of financial position, by remaining contractual maturities at the end ofthe reporting period. The amounts disclosed in the tables for financial liabilities are contractual undiscounted cash flows andtherefore differ from the carrying amounts of these liabilities in the consolidated statement of financial position.124