This story appeared in Bank Digest.
The federal bank, thrift and credit union regulatory agencies, and the Conference of State Bank Supervisors, have jointly issued a policy statement on funding and liquidity risk management practices. The policy statement emphasizes the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk. According to the agencies, financial institutions are to manage funding and liquidity risk using processes and systems that are commensurate with the institution's complexity, risk profile and scope of operations.
An institution's liquidity management process should be sufficient to meet daily funding needs and cover both expected and unexpected deviations from normal operations, the policy statement says. Institutions should have documented strategies for managing liquidity risk and clear policies and procedures for limiting and controlling risk exposures that appropriately reflect the institution's risk tolerances. Institutions also should consider liquidity costs, benefits and risks in strategic planning and budgeting processes. The policy statement addresses the need for intraday liquidity management, the use of diversified funding sources and contingency funding plans.