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Liquidity Analysis Solutions

Liquidity Policy and Measurement Review

Liquidity management is changing. The financial crisis of 2008 & 2009 has created a sense of urgency for institutions to change their management of liquidity, as well as the measures used to monitor positions. As the regulators increase their ALCO examinations to include all risk areas, it will be imperative for you to integrate the liquidity measures into the regular review. Decreased reliance on wholesale funding, combined with pressure to maintain and raise deposits, means new risks in meeting funding goals. With the regulatory guidance placing expectations on stress-testing of liquidity, traditional measures of risk are no longer relevant. New policies and measures are needed, now!

The Liquidity Policy and Measurement Review provides an analysis of your current liquidity policy in relation to the proposed interagency guidance and expected final rule. This review examines your policy for its appropriateness relative to your size, and complexity and susceptibility to cash flow volatility.

Critical areas of assessment include:

Does the policy clearly establish the purpose, objectives and goals of liquidity management?
How does the policy conveys the Board’s tolerance for liquidity risk (e.g., are risk limits in terms of ratios and/or net cash flows established in the policy)?
What are minimum balances for short-term and overnight funding?
Whether alternative sources of liquidity have been identified, including contingency funding plans under various stress test scenarios?
Who has the responsibility for monitoring liquidity?
What reporting and documentation processes are in place and are they well explained?

The FARIN liquidity review ensures that the liquidity policy captures the management processes required to sufficiently monitor the Institution’s liquidity position on a current and forward basis.

Where necessary, we will provide a suggested framework for policy changes, as well as new measures to effectively assess short and intermediate term liquidity needs, including the appropriate level of asset-based liquidity.

To learn more about how we can help you with your Liquidity Analysis or to schedule a preliminary consulting call, please contact us at (877) 400-0037, email us at sales@farin.com, or click here to complete a product inquiry form.