Explanation:
Effective governance requires intraday liquidity risk to be explicitly recognized in the bank's risk taxonomy and integrated into risk self-assessments, including the assessment of settlement risks. Furthermore, risk management typically follows a three lines of defense model, not eight, and PCS (Payment, Clearing, and Settlement) systems can act as both sources and uses of funds.
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20.8.2. Venkat¹ explains that "all risk management frameworks start with a governance structure that defines the roles and responsibilities of various bank employees and committees in overseeing risk-related activities," and effective governance includes the oversight of intraday liquidity risk. In regard to the governance structure of intraday liquidity risk management which of the following statements is TRUE?
A
Intraday liquidity risk should be accepted as a cost of doing business
B
Roles and responsibilities should be defined within the eight lines (i.e., two times four) of defense model
C
PCS Systems should only be a source of funds; if PCS becomes a use of funds, then a yellow flag should be triggered
D
Intraday liquidity risk should be incorporated in the risk taxonomy and is a component of risk self-assessment including settlement risks
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