Liquidity Exam Procedures

Liquidity is essential to a credit union’s operations. Without it, a credit union may be unable to meet its cash and collateral obligations. Inadequate liquidity can also increase a credit union’s vulnerability to market and total operational risks. For more information, see the Primary Risks related to liquidity.

2020 COVID-19 Supplemental Update

The COVID-19 pandemic may place additional stress on credit union balance sheets. Therefore, examiners place more emphasis on the effects of loan payment forbearance, delinquencies, projected credit losses, and loan modifications. Examiners also review scenario analysis for changes in cash flow projections based on a range of factors, such as:

  • Changing prepayment speeds

  • Scenario analysis for liquidity risk modeling, including changes in share composition and volumes

  • The potential effects of low interest rates and decline in credit quality on the market value of assets, funding costs, and borrowing capacity

  • The adequacy of any CFPs

Refer to NCUA Letter to Credit Unions 20-CU-07, Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, for a description of how the CARES Act provisions affect changes to CLF membership eligibility, CLF loan application process, and increased liquidity capacity. Examiners may also reference the COVID-19 Liquidity section of the Examiners’ Guide for additional information.

If a credit union utilizes the PPPLF to fund SBA PPP loans, examiners will review the credit union's strategy and balance sheet limits in this area. The Discount Window creditworthiness criteria is less restrictive for PPP loans. This can allow for substantial leveraging. See PPPLF Guidance for more information.


Examiners look at liquidity from two perspectives, described in the table below:

Quantitative Qualitative
  • The credit union’s current liquidity level using on and off balance sheet measurements

  • The trends and patterns in the credit union’s liquidity

  • Management's business plans and strategies identify potential liquidity risks

  • Tools used to measure and report liquidity risk are commensurate with the complexity of the balance sheet and business strategies

  • Management or the ALCO monitor and discuss the current and projected liquidity levels with respect to the board of directors’ risk appetite

  • Management takes actions to proactively control liquidity risk

  • Existing or potential threats to the credit union's liquidity position

The following topics describe review steps that examiners may follow to assess a credit union’s liquidity risk that will support the assignment of an “L” component. Examiners will determine the appropriate procedures based on their judgment and the specific circumstances of the credit union.

Examiners will also determine whether a credit union has met the requirements of NCUA regulation § 741.12, Liquidity and contingency funding plans. For additional guidance on CFPs, see the Determining the Adequacy of CFPs topic below.

The examination process includes:

Last updated on April 29, 2022