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Need for liquidity risk management underscored by regulators
WASHINGTON (3/18/10)--The National Credit Union Administration and other federal financial regualtory agencies in a joint policy statement released on Wednesday reiterated “the importance of effective liquidity risk management for the safety and soundness of financial institutions.” The policy statement was co-signed by the Board of Governors of the Federal Reserve System, the Conference of State Bank Supervisors, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. The statement also emphasized “the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets, and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk” for financial institutions. According to the release, “the agencies expect each financial institution to manage funding and liquidity risk using processes and systems that are commensurate with the institution’s complexity, risk profile, and scope of operations.” The policy statement also supplements some of its own recommendations with the “Principles for Sound Liquidity Risk Management and Supervision” that the Basel Committee on Banking Supervision issued in 2008. The Credit Union National Association (CUNA) last year commented on joint federal regulatory guidance on funding and liquidity risk management, saying that the guidance, which clarified and summarized principles of sound liquidity risk management previously issued by the agencies, made sense for banking organizations, but would only be redundant to existing rules for credit unions. CUNA at that time said that if the NCUA feels it is necessary to address liquidity risk issues, it should develop a Letter to Credit Unions that focuses on specific problems and addresses steps credit unions can take to address them under the agency's current liquidity risk management requirements. For the full release, use the resource link.
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