Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

Samantha: Hello,this is Samantha Shares.

This episode covers the National Credit
Union Administration's Advisory on

Liquidity Risk published on January
seventeenth, twenty twenty-four.

The following is an audio
version of that letter.

This podcast is educational
and is not legal advice.

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And now the advisory on
Liquidity Risk Management

Over the last year, the credit
union system’s performance has

been stable and resilient overall.

The, agency, however, continues
to see growing liquidity

stresses within the system.

For those credit unions experiencing
lower share growth, high loan growth, and

declining levels of available liquidity
as a result, liquidity management needs

to be conducted with the necessary
frequency and sophistication of methods

used, closely monitored by the credit
union’s senior management, and one

of the board of directors’ top areas
over which to provide good governance.

In general, the key areas of
focus for credit unions to

manage liquidity effectively are:

Managing and forecasting cash flows under
normal operating and stressed conditions.

Sensitivity analyses of cash flow and
deposit assumptions are of heightened

importance given recent trends in deposit
movement, which underscores the importance

of having a strong liquidity policy
and viable contingency funding plan.

During periods of uncertainty, it is
imperative credit union management

identify and measure its sources and
uses of funds, reevaluate assumptions

and risk relationships, and modify the
frequency that it projects cash flows.

It is also prudent to ensure
staff have relevant experience

and training in managing liquidity
in various market conditions.

Controlling asset composition such as
lending quality and volume, including

pricing, limits for lending personnel
and loan types, and originating

loans eligible for future sale.

Balance sheets with high levels of credit
risk or long duration with an inadequate

amount of short-term liquid assets
will require management to implement a

more robust risk management framework.

Structuring liabilities to be
congruent with asset growth.

Liabilities that can be relied upon
for funding under a broad range of

macro and microeconomic conditions
are considered more stable and

contribute to reducing liquidity risk.

Examples of stable funding sources
include regular shares and share drafts.

More volatile funding sources, such
as brokered deposits and uninsured

shares, should serve specific needs
and be well controlled and monitored.

Developing governance and monitoring
structures suitable for the credit union’s

size, complexity, and financial condition.

Governance structures should clearly
state roles and responsibilities, create

appropriate levels of accountability
and ensure the segregation of duties.

Liquidity monitoring systems
must adequately identify

and quantify risk exposure.

These systems must also ensure that
reporting processes communicate accurate,

timely, and relevant risk information.

Maintaining diversified
liquidity sources that can be

accessed in various situations.

This funding diversity includes having
access to at least one contingent

federal liquidity source during
times of financial emergency and

distressed economic circumstances.

Section 741.12 of National Credit Union
Administration regulations requires

access to either the Central Liquidity
Facility (C L F) or the Federal Reserve’s

Discount Window (Discount Window) for
all credit unions with $250 million or

more in total assets; however, all credit
unions should consider having a federally

sourced liquidity backup when other
market funding sources prove inadequate.

The ability to access funding at a
predictable rate through the C L F

or Discount Window should be part of
credit unions’ contingency liquidity

risk management plans under a range of
scenarios, not just in times of crisis.

The agency will continue to ensure
credit unions conduct liquidity

and asset-liability management
planning to address current

challenges and future uncertainties.

The agency website contains
a comprehensive Liquidity

Risk Resources page.

The Examiner’s Guide chapter on
liquidity also contains valuable

information to support credit unions’
efforts to strengthen liquidity

positions and risk management.

In 2024, the agency will host
webinars to provide more information

for credit unions on liquidity risk
management approaches and expectations.

Resources:

Several Resources are cited in
the advisory and are listed in

the show notes for this episode.

This concludes the Liquidity
Risk Management Advisory.

If your Credit union could use assistance
with your exam, reach out to Mark Treichel

on LinkedIn, or at mark Treichel dot com.

This is Samantha Shares and
we Thank you for listening.