Liquidity Ratios

Examiners may use ratios to initially assess the potential level of liquidity risk of a credit union. To supplement the initial risk assessment, examination planning, and scope development processes, examiners can use the AIRES Liquidity Review Questionnaire to evaluate additional elements that may contribute to liquidity risk. In addition to the AIRES Questionnaire, examiners should refer to the Risk Reports, Liquidity Trends, and Concentration Trends tabs in the Exam Workbook. Peer ratios are also located in the Asset Liability section of the Ratios tab found in the quarterly FPR.

Risk indicators do not constitute agency policy. Examiners must use their best judgement in all cases when using liquidity ratios.

On the Key Ratios Tab in Exam.xls Ratios in AIRES Other Ratios to Consider (calculated outside AIRES)


The loans-to-assets ratio measures total loans outstanding as a percentage of total assets. Credit unions should strive to maintain a loans-to-assets ratio that allows them to meet members’ loan demand and still meet other liquidity needs. As a rule of thumb, the higher the loans-to-assets ratio, the less liquid the balance sheet.

Risk Indicator: A high loans-to-assets ratio may indicate that a credit union could have difficulty funding future loan demand, especially if:

Therefore, it warrants attention during the review.


The loans-to-shares ratio focuses on a credit union's ability to fund loans from member and nonmember shares. The higher the ratio, the greater the likelihood a credit union might need to obtain funding from external sources.

This ratio is similar to the loans-to-assets ratio, but focuses only on a credit union's ability to fund loans from member and nonmember shares. The same rule of thumb for the loans-to-assets ratio applies to loans-to-shares: the higher the loans-to-shares ratio, the less liquid the balance sheet. The loans-to-shares ratio excludes funding from borrowings and capital. Examiners should check a credit union’s capital level and ability to manage borrowed funds to determine if a high loans-to-shares ratio indicates a problem. Further, if a credit union is relying on short-term nonmember shares, an examiner should determine if the credit union can maintain its loan volume in light of the higher volatility of these shares.

Risk Indicator:  For a well-capitalized credit union, a ratio in the range of 80 to 100 percent may be indicative of elevated liquidity risk; examiners should determine how management is managing liquidity risk.

Borrowings/Total Shares and Net Worth

This ratio reflects a credit union’s level of external borrowings relative to member shares and net worth. For example, significant borrowings may result from a credit union’s strategy to assume a higher degree of leverage in seeking higher earnings to fund growth. External borrowings that are long-term in maturity may also be used to reduce NEV/IRR volatility.

Risk Indicator: Examiners should look for unusual trends or sudden increases in this ratio, which may indicate unexpected liquidity strains. Examiners should also determine the purpose and circumstances of borrowing activity. Unplanned borrowings for liquidity needs represent a supervisory concern, while planned strategic borrowings to reduce liquidity risk or interest rate risk may not pose a concern.

Nonmember Deposits/Total Deposits

This ratio reflects a credit union’s use of external funding sources, such as brokered certificates. Nonmember deposits may indicate a credit union’s loan demand is growing faster than member deposits and therefore unable to meet its cash needs through member shares. Using brokered certificates is another way to raise cash quickly without having to increase member certificate rates.

Risk Indicator: Examiners should look for unusual trends or sudden increases in this ratio, which may indicate unexpected liquidity strains.

Borrowings and Nonmember Deposits/Total Shares and Liabilities

The presence of borrowings and nonmember deposits may indicate a credit union is unable to meet its cash needs through member shares. Because these funds (such as brokered certificates) may incur higher costs and be more volatile than member shares, the condition generally requires a higher level of oversight. Examiners should assess whether a credit union uses increases in FHLB term borrowings to reduce liquidity risk or interest rate risk.

Risk Indicator: Generally, an elevated ratio may indicate more volatile funding sources that may merit further attention. FHLB term borrowings that are used to lower the cost of term funding should not be cause for concern.

Cash and Short-Term Investments/Assets

This ratio provides an indicator of how much cash is available to meet share withdrawals or additional loan demand. This ratio can change dramatically in a short period and, like other liquidity ratios, is not a sole indicator of liquidity adequacy. Examiners should consider any trends in this ratio and determine whether the current level of cash and short-term investments is consistent with historic levels.

Examiners should understand the composition of short-term investments when evaluating this ratio and its trend.  For example, in addition to maturities, short-term investments could include longer-term, variable rate amortizing instruments (mortgage-backed securities) that reprice under one year but have low associated cash flows for liquidity purposes.

Risk Indicator: A low (less than 10 percent) or rapidly declining ratio may indicate a credit union will be unable to meet its immediate obligations with current assets.

Regular Shares and Share Drafts/Total Shares and Borrowings

This ratio reflects the level of core deposits on a credit union’s balance sheet. A credit union can reasonably depend on the availability of these stable funds to meet liquidity demands.

Risk Indicator: If a majority of shares are not in core deposits, the credit union may have a more volatile deposit base. Examiners should assess the credit union's share structure, concentration, rates, account stability, and account balances to identify any other volatility indicators.

Volatile Funds/Total Shares and Borrowings

This ratio reflects a credit union’s ability to fund loan growth with retail deposits.

Risk Indicator: If this ratio is trending above peer institution ratios, examiners should look further as to pricing of liabilities to estimate price sensitivity. Higher levels of volatile liabilities will need additional monitoring and controls.

Examiners should also review the Deposit Concentrations results listed in the Concentration Trends report available in the Exam Workbook.

Unfunded Commitments/Cash and Fair Value of Investments

This ratio reflects a credit union’s ability to meet potential commitments (for example, unfunded loan commitments or lines of credit, letters of credit, or loans sold with recourse) with the cash and investments on its balance sheet.

Risk Indicator: If this ratio is significantly high, examiners may want to expand their analysis to review the potential impact of contingent liabilities on liquidity. Check to confirm that unfunded commitments are included in the liquidity/CFP stress test.

Net Liquid Assets/Total Liabilities and Shares

This ratio reflects available liquid assets after short-term liability obligations have been met. This provides the examiner with a coverage ratio of liquid assets to member shares.

Risk Indicator: The lower the ratio, the greater likelihood the credit union will have to use market alternatives (for example, borrowings, repurchase agreements, or nonmember deposits) to meet its cash needs. A ratio of less than 5 percent may warrant further review. A counterbalancing factor would be the existence of adequate levels of high-quality, unencumbered collateral which may be pledged for the purpose of an advance.

Volatile Liabilities/Cash and Short-Term Investments

This ratio reflects the level of volatile funding on a credit union’s balance sheet relative to the availability of more liquid assets to cover those obligations. Money market shares and short-term borrowed funds, certificates, and nonmember deposits are often more volatile sources of funding.

Risk Indicator: A high ratio indicates that a credit union may need to access alternative funding sources, especially if the credit union cannot continue to pay attractive dividends.

Examiners should also consider whether a credit union has longer-term borrowings, certificates, and nonmember deposits that may behave more like short-term funds. Embedded terms in the borrowings and inadequate early withdrawal penalties may result in the funds being withdrawn from the credit union prior to maturity (typically during periods of rapidly rising interest rates).

Growth in Volatile Liabilities/Assets

This ratio reflects the level of volatile funding on a credit union’s balance sheet. Money market shares and short-term borrowed funds, certificates, and nonmember deposits are often more volatile sources of funding. This ratio does not consider IRA shares as volatile liabilities, because tax rules may inhibit significant withdrawals.

Risk Indicator: If growth is rapid, examiners should determine how the credit union is investing the funds. Investing volatile funds in long-term assets could lead to liquidity problems because volatile funds may be withdrawn prior to the maturity of assets.

Investment Loss Ratio

This ratio reflects unrealized losses on AFS securities and unrecognized losses on HTM securities.

Risk Indicator: Significant unrealized losses could hinder a credit union's ability to sell investments to fund cash demands. Adequate amount of short term and liquid investments not priced at a loss is a counterbalancing factor.

Estimated Loan Maturity

This calculation measures average number of months it would take for the loan portfolio to turn over based on loans granted in the past year. Consumer loans provide proportionately higher principal cash flows than long-term real estate loans. In general, increased long-term loans will reduce overall short-term liquidity, especially if the loan portfolio is a significant portion of assets and/or is expanding.

Risk Indicator: An estimated loan maturity greater than 48 months may indicate higher liquidity risk and warrant further attention. Increasing maturities or the lengthening of the loan portfolio can indicate reduced principal cash flows.

Unfunded Commitments/Cash and Short-Term Investments

This ratio reflects the portion of members’ unused lines of credit commitments (for example, credit cards, HELOCs, MBLs) covered by the balance sheet's more liquid assets. Examiners should assess whether credit unions have enough liquid assets to cover unfunded commitments.

Risk Indicator: A high or rapidly increasing ratio indicates a credit union is more susceptible to liquidity shortfalls in the event that members draw on unused lines. Look to see if the credit union is stressing these lines as a scenario in the suite of liquidity/CFP stress tests.

Pledged Assets/Total Assets

This ratio reflects the amount of assets (for example, loans or investments) that are not available to meet immediate liquidity needs because they are already pledged.

Risk Indicator: A higher ratio can indicate that the credit union is less able to convert assets to liquid funds. Examiners should check the accuracy of the pledge report.

Examiners should also review contingency funding plans to determine if the credit union is overstating potential liquidity by including both the sale of assets to generate liquidity and using the same assets as collateral to increase borrowings.

This data is not captured in Call Report data. Examiners may need to obtain data directly from the credit union in order to calculate this ratio.

Last updated August 9, 2018