Liquidity Day 17: Liquidity Governance Explained - How Culture Shapes Bank Resilience
3 May 2026·11 min
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In this session of the Liquidity Management course from The Industry Portal, we move beyond models, metrics, and systems to focus on one of the most decisive elements of liquidity risk management: governance and culture. While ratios and stress tests are essential, liquidity outcomes are ultimately shaped by how people think, behave, escalate issues, and make decisions under pressure.
This lesson explains why strong liquidity governance provides the backbone of effective risk management and why culture determines whether that framework actually works in practice. You will learn how liquidity risk is governed at every level of the organisation, from the Board of Directors through executive committees such as ALCO and down into day to day Treasury, Risk, and Finance operations.
We begin by exploring formal liquidity governance structures. The session explains the Board’s role in setting liquidity risk appetite, approving strategy, and holding senior management accountable. We then examine the role of ALCO as the central decision-making forum for liquidity, funding, and balance sheet risks, including how it reviews metrics, stress testing results, funding plans, and regulatory compliance.
You will gain insight into the supporting committee structure that sits beneath ALCO, including liquidity risk committees, funding strategy forums, and Treasury working groups. The importance of clear ownership across Treasury, Risk, Finance, IT, and Internal Audit is explored, along with how RACI frameworks are used to ensure accountability and prevent gaps in responsibility.
Escalation is a key theme throughout the session. We explain how early warning indicators, metric breaches, and market signals are escalated through the organisation, how contingency governance is activated during stress, and why timely, transparent communication with regulators such as the PRA and ECB is critical to maintaining credibility.
The session then turns to liquidity culture. You will learn why a strong liquidity culture means that liquidity is everyone’s responsibility, not just the concern of specialist teams. We explore how tone from the top, training, incentives, and performance management shape behaviours across the bank, influencing how products are designed, growth is pursued, and risks are challenged.
We also examine how tools such as funds transfer pricing, balanced scorecards, and crisis simulations reinforce good behaviour by aligning incentives with liquidity outcomes. The role of challenge, psychological safety, and diversity in decision-making is highlighted, showing how inclusive cultures lead to better risk management in complex and fast-moving environments.
Regulatory expectations are woven throughout the lesson. You will understand how supervisors increasingly assess governance and culture as part of liquidity reviews, including under frameworks such as ILAAP and regimes like SM&CR in the UK. The message is clear: weak governance or poor culture can undermine even the most sophisticated liquidity frameworks.
By the end of this video, you will understand why liquidity risk is managed by people as much as by policies. Strong governance provides the structure, culture brings it to life, and alignment between the two is what enables banks to manage liquidity proactively, respond effectively to stress, and maintain trust with regulators and markets.
This session sets the foundation for the next lesson, where we explore the relationship between liquidity and capital and how banks manage these two critical buffers together to build overall resilience.
liquidity governanceliquidity cultureliquidity risk managementbanking governancerisk culture bankingasset and liability committeealcoboard oversight bankingliquidity risk appetiteescalation frameworkscontingency governancetreasury governance
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