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. Such a plan also helps management to monitor liquidity risk, ensure that an appropriate amount of liquid assets is maintained, measure and project funding requirements during various scenarios, and manage access to funding sources. In a crisis situation, management has little time to plan its strategy, so it is important to have a well-developed contingency liquidity plan prior to a crisis occurring. The need for contingency plans is even more critical for banks that have an increasing reliance on alternative funding sources.

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

 

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