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Hello, this is Samantha Shares.

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This episode covers the National Credit
Union Administration's Letter to Credit

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Unions on Contingency Funding Plans.

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The following is an audio version of
that letter, but first this podcast is

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educational and is not legal advice.

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Solutions Incorporated, whose team

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tips on how to achieve success with NCUA.

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And now the letter.

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Letter number 23, CU06, July 2023.

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The importance of
contingency funding plans.

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Dear boards of directors and
chief executive officers.

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On July 28, 2023, NCU had joined with
three federal financial institution

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regulatory agencies to issue the
enclosed addendum to the interagency

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policy statement on funding and
liquidity risk management, importance

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of contingency funding plans.

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The addendum reminds credit unions
about the importance of a strong

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and viable contingency funding plan.

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The agencies expect all depository
institutions to maintain actionable

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contingency funding plans that consider
a range of possible stress scenarios.

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The events of the first half of
2023 have further underscored the

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importance of liquidity risk management
and contingency funding planning.

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The level and speed of deposit outflows
at a few firms was unprecedented and

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contributed to acute liquidity and
funding strain at those institutions.

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These events are a reminder to depository
institutions that depositor behavior

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and broader market conditions can evolve
over time, and sometimes without warning.

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Additional information for liquidity
resources is now available on the NCUA

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website, including information about
the Central Liquidity Facility and

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the Federal Reserve's discount window.

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Please contact your NCU, a regional
office, or state regulatory

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authority if you have questions
about this important topic.

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Addendum to the Interagency
Policy Statement on Funding

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and Liquidity Risk Management.

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Importance of Contingency Funding Plans.

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Depository institutions should
maintain actionable contingency

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funding plans that consider a
range of possible stress scenarios.

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The events of the first half of
2023 have further underscored the

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importance of liquidity risk management
and contingency funding planning.

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As seen in these events, the level
and speed of deposit outflows at

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a few firms was unprecedented and
contributed to acute liquidity and

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funding strain at those institutions.

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These events are a reminder to depository
institutions that depositor behavior

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and broader market conditions may evolve
over time, and sometimes without warning.

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Depository institutions should assess the
stability of their funding and maintain

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a broad range of funding sources that
can be accessed in adverse circumstances.

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In addition, depository institutions
should be aware of the operational

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steps required to obtain funding from
contingency funding sources, including

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potential counterparties, contact
details, and availability of collateral.

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As part of operational readiness,
depository institutions should regularly

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test any contingency borrowing lines
to ensure the institution's staff

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are well versed in how to access them
and that they function as envisioned.

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In particular, depository institutions
should engage in planning that recognizes

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the operational challenges involved in
moving and posting collateral to access

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critical funding in a timely fashion.

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Such planning may require initial or
renewed contact with entities such

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as the Federal Reserve System and
the Federal Home Loan Bank System.

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Depository institutions contingency
funding plans should recognize that

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during times of stress, contingency
lines may become unavailable.

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For example, repo lines may become
unavailable to a bank or credit union

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borrower, either due to concerns of the
repo lender about the creditworthiness

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of the bank or credit union, or
due to the repo lender needing to

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conserve liquidity more generally.

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Depository institution contingency
funding plans should take this

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dynamic into account and include a
range of contingency funding sources.

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Depository institutions should review
and revise contingency funding plans

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periodically and more frequently
as market conditions and strategic

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initiatives change in order to
address evolving liquidity risks.

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For example, an institution that
increases the share of its liabilities

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comprised of less stable funding
should consider whether it needs

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to increase its capacity to borrow
from contingency funding sources.

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The agencies view having access to a range
of reliable contingency funding sources as

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a key component of safety and soundness.

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Contingency funding and the
Federal Reserve discount window.

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In an environment where liquidity stress
manifests quickly, the discount window

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is an important tool that depository
institutions can utilize in managing

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liquidity risk, and the agencies encourage
depository institutions to incorporate

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the discount window as part of their
contingency funding arrangements.

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If the discount window is a part of a
depository institution's contingency

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funding plans, the depository
institution should establish and

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maintain operational readiness to
borrow from the discount window.

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Operational readiness includes
establishing borrowing arrangements

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and ensuring collateral is available
for borrowing in an amount appropriate

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for a depository institution's
potential contingency funding needs.

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Depository institutions should ensure they
are familiar with the pledging process

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for different collateral types and be
aware that pre pledging collateral can be

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useful if liquidity needs arise quickly.

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Depository institutions that include
the discount window as part of

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their contingency funding plan
should also consider conducting

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small value transactions at regular
intervals to ensure familiarity

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with discount window operations.

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Information regarding the discount
window is available at FRBdiscountwindow.

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org.

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Credit Union Contingency Funding
and the Central Liquidity Facility.

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Federal and state chartered credit unions
can access the Central Liquidity Facility

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as a contingent federal liquidity source.

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The Central Liquidity Facility exists to
provide federally sourced backup liquidity

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where a credit union's liquidity and
market funding sources prove inadequate.

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Section 741.

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12 of NQS Regulations outlines
requirements for federally insured

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credit unions to have liquidity
and contingency funding plans.

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The scope of these plans
varies by credit union size.

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Credit unions with assets greater than
250 million must, among other things,

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establish and document access to at least
one contingent federal liquidity source.

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Credit unions subject to this requirement
may demonstrate access to a contingent

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federal liquidity source by maintaining
membership in the central liquidity

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facility or establishing borrowing access
at the Federal Reserve discount window.

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Credit unions between 50 million
and 250 million in total assets

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must, among other things, include
in required policies identification

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of contingent liquidity sources.

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Credit unions under 50 million and
must maintain a basic written policy

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that provides a framework for managing
liquidity and includes a list of

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contingent liquidity sources that can
be employed under adverse circumstances.

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Information regarding the Central
Liquidity Facility is available at ncua.

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gov.

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Thanks for listening, and remember,
if you need assistance with NCUA,

00:08:31.223 --> 00:08:35.203
reach out to our sponsor, Mark
Treichel's Credit Union Exam Solutions.