Liquidity Sources

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.

Contingency Funding Plan: A credit union must have a written CFP commensurate with its complexity, risk profile, and scope of operations that sets out strategies for addressing liquidity shortfalls in emergency situations. The CFP may be a separate policy or may be incorporated into an existing policy such as an asset/liability policy, a funds management policy, or a business continuity policy. The CFP must address, at a minimum, the following:

(1) The sufficiency of the institution's liquidity sources to meet normal operating requirements as well as contingent events;

In addition to the requirement specified in paragraph (b) of this section to establish and maintain a CFP, any credit union insured pursuant to Title II of the Act that has assets of $250 million or more must establish and document access to at least one contingent federal liquidity source for use in times of financial emergency and distressed economic circumstances. These credit unions must conduct advance planning and periodic testing to ensure that contingent funding sources are readily available when needed.

Any credit union insured pursuant to Title II of the Act that has assets of less than $50 million must maintain a basic written policy that provides a credit union board-approved framework for managing liquidity and a list of contingent liquidity sources that can be employed under adverse circumstances

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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: