The following are examples of typical guidelines established by a sound liquidity and funds management policy:
- Provides for the establishment of an asset/liability committee. Define who will be on the committee, what its responsibilities will be, how often it will meet, how it will obtain input from the board, how its results will be reported back to the board, and who has authority to make liquidity and funds management decisions.
- Provides for the periodic review of the bank's deposit structure. Include the volume and trend of total deposits and the volume and trend of the various types of deposits offered, the maturity distribution of time deposits, rates being paid on each type of deposit, rates being paid by trade area competition, caps on large time deposits, public funds, out-of-area deposits, and any other information needed.
- Provides policies and procedures that address funding concentration in or excessive reliance on any single source or type of funding, such as brokered funds, deposits obtained through the Internet or other types of advertising, and other similar rate sensitive or credit sensitive deposits.
- Provides a method of computing the bank's cost of funds.
- In conjunction with the bank's investment policy, determines which types of investments are permitted, the desired mix among those investments, the maturity distribution and the amount of funds that will be available, and reviews pledging opportunities and requirements.
- Conveys the board's risk tolerance and establishes target liquidity ratios such as loan-to-deposit ratio, longer-term assets funded by less stable funding sources, individual and aggregate limits on borrowed funds by type and source, or a minimum limit on the amount of short-term investments.
- Provides an adequate system of internal controls that ensures the independent and periodic review of the liquidity management process, and compliance with policies and procedures.
- Ensures that senior management and the board are given the means to periodically review compliance with policy guidelines, such as compliance with established limits and legal reserve requirements, and verify that duties are properly segregated.
- Includes a contingency plan that addresses alternative sources of funds if initial projections of funding sources and uses are incorrect or if a liquidity crisis arises. Establishes bank lines and periodically tests their use.
- Establishes a process for measuring and monitoring liquidity, such as generating pro-forma cash flow projections or using models.
- Defines approval procedures for exceptions to policies, limits, and authorizations.
- Provides for tax planning.
Provides authority and procedures to access wholesale funding sources, and includes guidelines for the types and terms of each wholesale funding source permitted. Defines and establishes a process for measuring and monitoring unused borrowing capacity.