Liquidity risk management is an ongoing responsibility. The functions that oversee and execute liquidity risk management include:
To the extent practicable, prudent credit unions separate risk measurement and risk-taking duties. This segregation of duties promotes a more objective assessment of liquidity and limits the influence of prior decisions on the risk assessment function. Complete segregation of duties is not always possible in credit unions with limited staff; in these cases, management establishes mitigating controls to enable independent review. This may include supervisory committee review, having an ALCO comprised of senior management and board members, or having an external ALM modeling process.
A credit union’s board of directors is ultimately responsible for the liquidity risk assumed by the credit union. For this reason, the board of directors’ risk management policies address liquidity and contingency funding needs.
Per guidance found in the Interagency Policy Statement on Funding and Liquidity Risk Management,1 the board of directors:
Understands the nature of the credit union’s liquidity position and maintains this understanding through periodic reviews
Establishes executive-level lines of authority and responsibility for managing the credit union’s liquidity risk
Enforces management’s duties to identify, measure, monitor, control, and report on liquidity risk
Understands the credit union’s CFP for handling potential adverse liquidity events and reviews the plan periodically
Understands the liquidity risk profiles of important subsidiaries and affiliates, as appropriate
A credit union’s operational management is responsible for executing board-approved policies and procedures for managing liquidity (on both a long-term and day-to-day basis) within the lines of authority, and meeting the requirements of NCUA regulation § 741.12, Liquidity and contingency funding plans. This includes overseeing the development and implementation of:
Appropriate risk measurement and reporting systems
An effective system of controls over liquidity management
A prudent credit union establishes processes to ensure that senior management monitors and responds promptly to all material developments. Management is also responsible for delivering ongoing liquidity risk profile reports to the board of directors.
A credit union’s board of directors may appoint an ALCO (or similar committee) to monitor the credit union’s liquidity profile. This committee is comprised of credit union staff from all functional areas that directly or indirectly influence the credit union’s liquidity risk profile. Although not required, this committee should include at least one member from the board of directors, as well as senior managers with authority over the units responsible for executing liquidity-related transactions and other activities within the liquidity risk management process.
In addition, the committee ensures that the risk measurement system adequately identifies and quantifies risk exposure, and that the reporting process communicates accurate, timely, and relevant information about the level and sources of risk.
Last updated April 29, 2022