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Samantha: Hello,this is Samantha Shares.

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This episode covers the National Credit
Union Administration's Advisory on

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Liquidity Risk published on January
seventeenth, twenty twenty-four.

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The following is an audio
version of that letter.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
Forty years of N C U A experience.

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They assist their clients with N
C U A so they save time and money.

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If you are worried about a recent,
upcoming or in process N C U A

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examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

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Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

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And now the advisory on
Liquidity Risk Management

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Over the last year, the credit
union system’s performance has

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been stable and resilient overall.

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The, agency, however, continues
to see growing liquidity

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stresses within the system.

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For those credit unions experiencing
lower share growth, high loan growth, and

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declining levels of available liquidity
as a result, liquidity management needs

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to be conducted with the necessary
frequency and sophistication of methods

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used, closely monitored by the credit
union’s senior management, and one

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of the board of directors’ top areas
over which to provide good governance.

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In general, the key areas of
focus for credit unions to

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manage liquidity effectively are:

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Managing and forecasting cash flows under
normal operating and stressed conditions.

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Sensitivity analyses of cash flow and
deposit assumptions are of heightened

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importance given recent trends in deposit
movement, which underscores the importance

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of having a strong liquidity policy
and viable contingency funding plan.

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During periods of uncertainty, it is
imperative credit union management

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identify and measure its sources and
uses of funds, reevaluate assumptions

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and risk relationships, and modify the
frequency that it projects cash flows.

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It is also prudent to ensure
staff have relevant experience

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and training in managing liquidity
in various market conditions.

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Controlling asset composition such as
lending quality and volume, including

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pricing, limits for lending personnel
and loan types, and originating

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loans eligible for future sale.

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Balance sheets with high levels of credit
risk or long duration with an inadequate

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amount of short-term liquid assets
will require management to implement a

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more robust risk management framework.

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Structuring liabilities to be
congruent with asset growth.

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Liabilities that can be relied upon
for funding under a broad range of

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macro and microeconomic conditions
are considered more stable and

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contribute to reducing liquidity risk.

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Examples of stable funding sources
include regular shares and share drafts.

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More volatile funding sources, such
as brokered deposits and uninsured

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shares, should serve specific needs
and be well controlled and monitored.

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Developing governance and monitoring
structures suitable for the credit union’s

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size, complexity, and financial condition.

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Governance structures should clearly
state roles and responsibilities, create

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appropriate levels of accountability
and ensure the segregation of duties.

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Liquidity monitoring systems
must adequately identify

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and quantify risk exposure.

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These systems must also ensure that
reporting processes communicate accurate,

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timely, and relevant risk information.

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Maintaining diversified
liquidity sources that can be

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accessed in various situations.

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This funding diversity includes having
access to at least one contingent

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federal liquidity source during
times of financial emergency and

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distressed economic circumstances.

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Section 741.12 of National Credit Union
Administration regulations requires

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access to either the Central Liquidity
Facility (C L F) or the Federal Reserve’s

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Discount Window (Discount Window) for
all credit unions with $250 million or

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more in total assets; however, all credit
unions should consider having a federally

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sourced liquidity backup when other
market funding sources prove inadequate.

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The ability to access funding at a
predictable rate through the C L F

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or Discount Window should be part of
credit unions’ contingency liquidity

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risk management plans under a range of
scenarios, not just in times of crisis.

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The agency will continue to ensure
credit unions conduct liquidity

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and asset-liability management
planning to address current

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challenges and future uncertainties.

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The agency website contains
a comprehensive Liquidity

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Risk Resources page.

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The Examiner’s Guide chapter on
liquidity also contains valuable

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information to support credit unions’
efforts to strengthen liquidity

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positions and risk management.

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In 2024, the agency will host
webinars to provide more information

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for credit unions on liquidity risk
management approaches and expectations.

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Resources:

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Several Resources are cited in
the advisory and are listed in

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the show notes for this episode.

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This concludes the Liquidity
Risk Management Advisory.

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If your Credit union could use assistance
with your exam, reach out to Mark Treichel

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on LinkedIn, or at mark Treichel dot com.

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This is Samantha Shares and
we Thank you for listening.