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.

To balance profitability and liquidity, management must carefully weigh the full return on liquid assets (yield plus insurance value) against the expected higher return associated with less liquid assets. Income derived from higher yielding assets may be offset if a forced sale is necessary due to adverse balance sheet fluctuations.

https://www.fdic.gov/regulations/safety/manual/section6-1.html#management

 

Reasons all banks should have a contingency funding plan

Submitted by sevans on Thu, 02/26/2015 - 2:16pm

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.

In addition to a written liquidity policy, a FICU with assets of $50 million or more must have a contingency funding plan (CFP) that clearly sets out strategies for addressing liquidity shortfalls in emergencies. A CFP must include policies, procedures, projection reports, and action plans designed to ensure a credit union’s sources of liquidity are sufficient to fund operating requirements under contingent liquidity events.

Components of a credit union’s Liquidity policy

Submitted by sevans on Mon, 02/23/2015 - 2:55pm

(Credit unions must have a Liquidity Policy …)

This policy does not need to be elaborate, but it must cover certain basic elements that are fundamental to all depository institutions, including all of the following elements: