The board of directors is responsible for establishing the credit union's liquidity risk strategies, polices, procedures, limits and clearly communicating it to management. The board of directors understands the current state of liquidity risk and reviews policies annually.
Prerequisites
Perform an initial assessment of liquidity before completing this exam step.
People to Interview
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President/Manager
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Chief Financial Officer
Documents to Review
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Liquidity Policies/Procedures
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ALCO Minutes
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Board Minutes
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Liquidity reports
Questions to Consider
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Is there a specific individual or committee assigned the responsibilities of monitoring the credit union’s liquidity risk?
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Is there a separation in roles of risk monitoring and risk taking?
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Do the ALCO reports clearly and frequently communicate the credit union’s liquidity position versus policy limits?
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Does the board of directors understand the credit union’s liquidity risk and periodically review the institution’s liquidity and contingent funding policies?
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Has management set appropriate risk limits?
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Is management effective in controlling the operations of the credit union to maintain liquidity?
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Is management aware of potential threats to the credit union’s liquidity position? Awareness of potential threats demonstrates that management and the board of directors are proactive in assessing the liquidity situation.
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Does management adequately identify, measure, monitor, control, and report on liquidity? Examples of liquidity reports reviewed by the board of directors include:
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liquidity ratio analysis
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concentration limits
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liquidity gap
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base case cash flow projections
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stressed cash flow projections
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Does the credit union use adequate, reliable tools to realistically measure, forecast, and test liquidity?
Intersections & Implications
Inadequate oversight of the liquidity function could indicate a lack of oversight of the credit union overall. Discuss issues with oversight of the liquidity function with the EIC.
Last updated August 30, 2021
