The federal banking agencies, in conjunction with the Conference of State Bank Supervisors (CSBS), released a policy statement on their expectations for sound funding and liquidity risk management practices. The Interagency Policy Statement on Funding and Liquidity Risk Management, adopted by the FDIC, the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration and the CSBS, summarizes the principles of sound liquidity risk management issued previously and, when appropriate, supplements them with the Principles for Sound Liquidity Risk Management and Supervision (tinyurl.com/yk8ondu) issued in September 2008 by the Basel Committee on Banking Supervision.
The policy statement, effective May 21, reiterates the importance of effective liquidity risk management for the safety and soundness of financial institutions. It emphasizes the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk. The agencies expect each financial institution to manage funding and liquidity risk using processes and systems that are commensurate with the institution’s complexity, risk profile and scope of operations.
The policy statement is available at tinyurl.com/y9forwb.
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