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Aim for a stress-free summer with proper liquidity testing and maintenance

Take the necessary steps to ensure the health of your balance sheets

By Perry Jones, VP Portfolio Manager

Perry JonesJune 29, 2015 -- Since before the new liquidity regulation became effective in March of 2014, credit unions have diligently worked to develop and implement liquidity policies and contingency funding plans or revise and test pre-existing policies and plans.

Now, as we enter the seasonal run-off of on-balance sheet liquidity, it is important to review and update these plans as needed to ensure a stress free summer. If properly maintained, these policies and plans will serve you well as the general economy continues to improve, which will undoubtedly affect your liquidity position, and eventually, interest rates.

According to the National Credit Union Administration (NCUA), liquidity risk remains one of the primary regulatory concerns for 2015. Maintaining sufficient on-balance-sheet liquidity, establishing adequate levels of external funding, and seeking contingency federal funding solutions, if desired or required, will be essential to minimizing regulatory scrutiny. And, ongoing monitoring, testing and maintenance of the liquidity plans will be instrumental to managing and demonstrating the sound liquidity posture of your organization.

Prioritizing liquidity monitoring

With the summer months upon us, monitoring your liquidity position may become a higher priority within your organization. Organizations that operate with lower levels of on-balance-sheet funding may perform monitoring on an hourly basis, whereas other organizations may be in a position to monitor liquidity on a daily, weekly or monthly basis. Generally, the first tool for monitoring your liquidity position will be your primary settlement account at Corporate One.

Through our online account management system, Member$mart, you can monitor your intraday or end-of-day liquidity position, and this system will also allow you to access loans on demand through your credit line. If you need any guidance on accessing or making payments on overnight loan products through Member$mart, we have upcoming trainings that will be found in the Members Only section of our website. (Stay tuned for more details.) In addition, any of our member service representatives can assist you with this process.

Benefitting from liquidity testing and maintenance

Testing your sources of external funding is an important component of ensuring that liquidity plans and policies remain up to date. Our internal and external environments are constantly evolving with changes in people and systems. By periodically testing sources of liquidity, you can demonstrate that the right people are authorized and those folks maintain access and the procedures required to borrow and transfer funds where needed.

Another important benefit of liquidity testing is to help minimize operational risk during periods of financial stress or other crises. For many organizations that do not access external funding periodically, when the need does occur, this may be due to unforeseen events that create significant pressure on the resources of the organization. This is not the time to be forced to update passwords, authorities, or even procedures. With regular testing, you will be confident in your process during these critical times.

Maintenance is highly correlated with testing as needed policy and plan updates will be uncovered through the testing process. However, maintenance may also involve positioning, monitoring and maintaining sufficient collateral with each lender to support issued lines.

Other important aspects of maintenance would be to ensure the organization maintains sufficient access to external funding as growth occurs, business strategies evolve, or conditions change with the composition of existing liabilities. These ongoing activities are essential to being prepared when liquidity tightens or when state or federal examiners become interested in your evolving business strategies.

Helping our members with liquidity solutions

In closing, Corporate One remains committed to being your preferred liquidity provider and providing solutions that best serve your individual credit union’s needs. If we can help you test your liquidity please contact our very helpful member services representatives, or, if you would like to discuss your sources of liquidity or Corporate One’s liquidity offerings, please contact your senior investment representative. All representatives can be reached at 866/MyCorp1.

Also, feel free to reach out to me directly at 866/MyCorp1 ext. 4030 if you would like to discuss liquidity planning, policies or your specific funding needs.

Best,
Perry Jones