Subscribe
Share
Share
Embed
This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello,this is Samantha Shares.
This episode covers the National Credit
Union Administration's Advisory on
Liquidity Risk published on January
seventeenth, twenty twenty-four.
The following is an audio
version of that letter.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
Forty years of N C U A experience.
They assist their clients with N
C U A so they save time and money.
If you are worried about a recent,
upcoming or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the advisory on
Liquidity Risk Management
Over the last year, the credit
union systemâs performance has
been stable and resilient overall.
The, agency, however, continues
to see growing liquidity
stresses within the system.
For those credit unions experiencing
lower share growth, high loan growth, and
declining levels of available liquidity
as a result, liquidity management needs
to be conducted with the necessary
frequency and sophistication of methods
used, closely monitored by the credit
unionâs senior management, and one
of the board of directorsâ top areas
over which to provide good governance.
In general, the key areas of
focus for credit unions to
manage liquidity effectively are:
Managing and forecasting cash flows under
normal operating and stressed conditions.
Sensitivity analyses of cash flow and
deposit assumptions are of heightened
importance given recent trends in deposit
movement, which underscores the importance
of having a strong liquidity policy
and viable contingency funding plan.
During periods of uncertainty, it is
imperative credit union management
identify and measure its sources and
uses of funds, reevaluate assumptions
and risk relationships, and modify the
frequency that it projects cash flows.
It is also prudent to ensure
staff have relevant experience
and training in managing liquidity
in various market conditions.
Controlling asset composition such as
lending quality and volume, including
pricing, limits for lending personnel
and loan types, and originating
loans eligible for future sale.
Balance sheets with high levels of credit
risk or long duration with an inadequate
amount of short-term liquid assets
will require management to implement a
more robust risk management framework.
Structuring liabilities to be
congruent with asset growth.
Liabilities that can be relied upon
for funding under a broad range of
macro and microeconomic conditions
are considered more stable and
contribute to reducing liquidity risk.
Examples of stable funding sources
include regular shares and share drafts.
More volatile funding sources, such
as brokered deposits and uninsured
shares, should serve specific needs
and be well controlled and monitored.
Developing governance and monitoring
structures suitable for the credit unionâs
size, complexity, and financial condition.
Governance structures should clearly
state roles and responsibilities, create
appropriate levels of accountability
and ensure the segregation of duties.
Liquidity monitoring systems
must adequately identify
and quantify risk exposure.
These systems must also ensure that
reporting processes communicate accurate,
timely, and relevant risk information.
Maintaining diversified
liquidity sources that can be
accessed in various situations.
This funding diversity includes having
access to at least one contingent
federal liquidity source during
times of financial emergency and
distressed economic circumstances.
Section 741.12 of National Credit Union
Administration regulations requires
access to either the Central Liquidity
Facility (C L F) or the Federal Reserveâs
Discount Window (Discount Window) for
all credit unions with $250 million or
more in total assets; however, all credit
unions should consider having a federally
sourced liquidity backup when other
market funding sources prove inadequate.
The ability to access funding at a
predictable rate through the C L F
or Discount Window should be part of
credit unionsâ contingency liquidity
risk management plans under a range of
scenarios, not just in times of crisis.
The agency will continue to ensure
credit unions conduct liquidity
and asset-liability management
planning to address current
challenges and future uncertainties.
The agency website contains
a comprehensive Liquidity
Risk Resources page.
The Examinerâs Guide chapter on
liquidity also contains valuable
information to support credit unionsâ
efforts to strengthen liquidity
positions and risk management.
In 2024, the agency will host
webinars to provide more information
for credit unions on liquidity risk
management approaches and expectations.
Resources:
Several Resources are cited in
the advisory and are listed in
the show notes for this episode.
This concludes the Liquidity
Risk Management Advisory.
If your Credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and
we Thank you for listening.