Minimal components of a funding contingency plan

Submitted by sevans on Tue, 03/03/2015 - 4:13pm

Each institution's liquidity policy should have a contingency plan that addresses alternative funding if initial projections of funding sources and uses are incorrect or if a liquidity crisis arises, such as when an institution is having trouble meeting its cash letter. A liquidity contingency plan helps ensure that a bank or consolidated company can prudently and efficiently manage routine and extraordinary fluctuations in liquidity.

Links at NCUA referring to Liquidity and Contingency Funding

Submitted by sevans on Mon, 02/23/2015 - 2:59pm

The link:

Provides quick links to a number of other sites at NCUA with further information on:

  • Liquidity Review Questionnaire
  • Guidance on how to comply with NCUA Liquidity Regulations
  • Part 741.12 Liquidity and Contingency Plans
  • Interagency Policy on Funding and Liquidity Risk Management 

The NCUA Board believes it is essential for every credit union to have a sound process for identifying, measuring, monitoring, and controlling liquidity risk that is commensurate with each credit union’s needs. And for larger credit unions, it is essential to have established access to a federal liquidity source. When a large credit union experiences unexpected or severe liquidity pressures, it is more likely to have a material impact on the credit union system, consumers, and the National Credit Union Share Insurance Fund.

There are three categories of liquidity sources that apply to liquidity planning. Each of these sources is relevant to the underlying safety and soundness of a credit union’s liquidity management program. Essentially, these sources act as layers of liquidity protection and function similar to a series of financial firewalls. The three categories are:

The NCUA Board adopted a final rule on liquidity and contingency funding plans on October 24, 2013.  NCUA adopted this rule to ensure all credit unions conduct sound liquidity planning, and large credit unions establish access to at least one federal source of contingent liquidity: the Federal Reserve Discount Window (Discount Window) and/or Central Liquidity Facility (CLF).  As we learned during the financial crisis, sound liquidity planning and access to federal liquidity sources are vital to the safety and soundness of the credit union system.