Minimal components of a funding contingency plan

Submitted by sevans on Tue, 03/03/2015 - 4:13pm

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.

Indicators a liquidity problem might be developing

Submitted by sevans on Tue, 03/03/2015 - 4:09pm

Management should monitor various internal as well as market indicators of liquidity problems at the institution. Indicators serve as early warning signals of a potential problem or as later stage indicators that the institution has a serious liquidity problem. The early warning indicators, while not necessarily requiring drastic corrective measures, may prompt management and the board to do additional monitoring. Examples of these indicators include the following:

To balance profitability and liquidity, management must carefully weigh the full return on liquid assets (yield plus insurance value) against the expected higher return associated with less liquid assets. Income derived from higher yielding assets may be offset if a forced sale is necessary due to adverse balance sheet fluctuations.

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

 

Reasons all banks should have a contingency funding plan

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.

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