Liquidity

Maintaining an adequate level of liquidity depends on a credit union’s ability to efficiently meet both expected and unexpected cash flows and collateral needs without adversely affecting the credit union’s daily operations or financial condition. The 2020 CARES Act contains several provisions that could materially influence a credit union’s liquidity position. Credit unions should consider the following when conducting liquidity risk management and planning activities:

• The effects of loan payment forbearance, loan delinquencies, projected credit losses and loan modifications on liquidity and cash flow forecasting
• Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds)
• Scenario analysis for liquidity risk modeling, including changes in share compositions and volumes
• The potential effects of low interest rates and the decline of credit quality on the market value of assets, funding costs and borrowing capacity
• The adequacy of contingency funding plans to address any potential liquidity shortfalls

Last updated on June 30, 2020