Liquidity Risk

Liquidity risk is the current and prospective risk to earnings or net worth arising from a credit union’s inability to meet its obligations at a reasonable cost when they come due. Changes in interest rates can impact a credit union’s primary source of funds (generally, member shares), which can lead to a strain on liquidity. In addition, changing rates will also impact a credit union’s secondary sources of liquidity such as borrowing lines, brokered deposits, listing service CDs, and even emergency funding rates at the Federal Reserve and CLF.

For example, some credit union NMS (regular shares, share drafts, and money market accounts) have no contractual maturity. While these NMS can be a long-term funding source, the timing of their cash flows is uncertain, and they may be sensitive to changes in interest rates.

Last updated on December 06, 2024