management risk tolerance level ; the set of monitoring tools institutions use for assessing their liquidity risk ; the robustness of stress tests scenarios and the extent to which they reflect luxembourg idiosyncrasies ; the size and composition of local liquidity buffers ; the internal consistency of banks ’ contingency funding plans and where applicable ; intra - day liquidity management. in addition, the bcl also pays attention to the soundness of the business model and the balance sheet structure of local credit institutions and in particular to possible liquidity risks that are being transferred from foreign - based banking groups to local subsidiaries. in this regard, some degree of liquidity management at the local level plays a significant role in the bcl liquidity risk assessment of banks, and it must be subject to its approval. finally, the bcl pays particular importance at assessing whether banks ’ internal pricing of liquidity within the institution and among group member duly reflects liquidity risk. but even these tools and procedures are not enough. the bcl liquidity surveillance framework includes a combination of qualitative and quantitative elements. on - site visits are an important component of the bcl monitoring framework in order to assess business models and the liquidity situation and the risk management framework of credit institutions. in the absence of a formal mou, the bcl surveillance visits are nevertheless coordinated and conducted with the commission de surveillance du secteur financier. since 2009, 14 on - site visits have been performed, and a similar number is expected to take place over the coming year. another pillar of the bcl liquidity framework is off - site surveillance. while structural liquidity risk may be monitored and analyzed through information provided by financial institutions ( prudential and statistical reporting requirements ), by the micro - prudential approach or even by market intelligence, the bcl endeavors to have timely cash - flow based liquidity projections from market participants on a short - term basis. at the moment, 45 financial institutions which are important from a financial stability and a monetary policy perspective, provide a forward - looking daily liquidity reporting that includes a five - day forecast. the forward - looking nature of indicators is at a premium given the sudden realization of liquidity risk. this is the reason for the bank ’ s analysis and close interaction with the industry in all aspects regarding the two liquidity ratios of basel iii and the monitoring tools proposed such as maturity ladder reporting, funding concentration, and the availability of unencumbered assets. another key

requirements. let me begin with the lcr. it is the current consensus of the basel committee that the lcr should be introduced after an observation or trial period thereby providing a window of opportunity during which any refinements to the measure could be introduced. from a technical perspective, the lcr is a short - term measure of liquidity which is specifically intended to ensure that financial firms can continue to access near - term liquidity needs in an efficient manner. in principle, this should make certain that banks have a sufficient quantity of liquid assets so as to be able to withstand up to a month - long period of sustained and severe liquidity stress. for illustrative purposes, let us consider what would have been the evolution of the lcr in the context of luxembourg ’ s financial sector. while the banque centrale du luxembourg ( bcl ) has not yet formally adopted this measure in its role as a liquidity supervisor of the luxembourg financial system, it is developing the framework necessary for the implementation of basel iii. i will describe its main components later. in an internal study conducted by the bcl, the evolution of the lcr was evaluated based on a sample of banks that excludes less - relevant branches and covers the period spanning from 2003 : q1 until 2010 : q4. bis central bankers ’ speeches figure 1 the evolution of the lcr for luxembourg ’ s banks, 2003q1 – 2010q4 source : bcl calculations. you can observe the evolution of the lcr for this period in the accompanying figure. it was found that the median of the lcr decreased from roughly 82 % in 2003 : q1 to a minimum of 52 % in 2009 : q1. since then it has been increasing almost consistently until the present time. one possible interpretation of this behavior for the period until 2009 : q1 is that banks were reducing their holdings of liquid assets. however, since the end of the crisis, financial institutions have been holding increasing amounts of liquid assets which represents the beginning of the re - stabilization of the liquidity conditions in the domestic financial markets. the nsfr will help to enhance the medium to long - term funding needs of banks thereby mitigating liquidity runs. let me now turn to the second of the two proposed liquidity measures, the nsfr. in contrast to the lcr, the nsfr is designed as a medium - to long - term measure of liquidity intended to mitigate any future liquidity runs and, subsequently avoid any