Liquidity Exam Procedures

Liquidity is essential to a credit union’s operations. Without it, a credit union may be unable to meet its cash and collateral obligations. Inadequate liquidity can also increase a credit union’s vulnerability to market and total operational risks. For more information, see the Primary Risks related to liquidity.

Overview

Examiners look at liquidity from two perspectives, described in the table below:

Quantitative

Qualitative

The credit union’s current liquidity level using on and off balance sheet measurements The trends and patterns in the credit union’s liquidity

Management's business plans and strategies identify potential liquidity risks Tools used to measure and report liquidity risk are commensurate with the complexity of the balance sheet and business strategies Management or the ALCO monitor and discuss the current and projected liquidity levels with respect to the board of directors’ risk appetite Management takes actions to proactively control liquidity risk Existing or potential threats to the credit union's liquidity position

The following topics describe review steps that examiners may follow to assess a credit union’s liquidity risk that will support the assignment of an “L” component. Examiners will determine the appropriate procedures based on their judgment and the specific circumstances of the credit union.

Examiners will also determine whether a credit union has met the requirements of NCUA regulation § 741.12, Liquidity and contingency funding plans. For additional guidance on CFPs, see the Determining the Adequacy of CFPs topic below.

The examination process includes:

• Initial Assessment

• Business and Other Risk Assessments

• Regulatory Requirements

• Determining the Adequacy of the CFP

• Corporate Governance

• Policies & Procedures

• Internal Controls

• Measuring and Monitoring Systems

• Cushion of Liquid Assets

• Adequacy of Diversified Funding Sources

• Ratio Analysis

Last updated on April 29, 2022