BAS September 2022 Presentations

Liquidity Rating

In evaluating the adequacy of a liquidity position, consideration should be given to the current level and prospective sources of liquidity compared to funding needs, as well as the adequacy of funds management practices relative to the institution’s risk profile. Funds management practices should ensure that an institution is able to maintain a level of liquidity sufficient to meet its financial obligations in a timely manner and the banking needs of its community. Practices should reflect the ability to manage unplanned changes in funding sources and react to changes in market conditions that affect the ability to quickly liquidate assets with minimal loss. Funds management should ensure liquidity is not maintained at a high cost or relianceon fundingsource not availablein financialstress or adverse marketconditions. Assessmentof a liquiditypositionwould include the following: Adequacy of liquidity sources compared to current and future needs ◊ Ability to meet funding needs without adverse effect on operations ◊ Availability to readily convert asset to cash ◊ Access to markets and other funding sources ◊ Diversification of funding sources ◊ Degree of reliance on short ‐ term, volatile sources of funds to fund long ‐ term assets ◊ Trend and stability of deposits ◊ Ability to securitize and sell certain pools of assets ◊ Management’s ability to identify, measure, monitor, and control liquidity position ◊ Effectiveness of funds management strategies,policies,informationsystems, and contingency fundingplans

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•Liquidity levelsare deficient •Inadequatefunds management practices •May not have ability to obtain sufficient volume of funds on reasonable terms to meet liquidityneeds

•Critically deficient levels of liquidityor funds management practices •Continued viabilityof the institution is threatened •Immediate external financial assistance to meet maturing obligations or operational liquidityis required

•Satisfactoryliquidity position •Fundsmanagement practices are adequate •Funding sourcesare sufficient and on acceptableterms •Modest weaknesses in fundmanagement practices

•Levels of liquidityare in need of improvement •May lack readyaccess to funding sources on reasonableterms •Evidence ofsignificant weaknesses in funds management practices

•Strong liquiditylevels •Well ‐ developed funds ‐ management practices •Reliable access to sufficientfunding sources with favorable terms •Ability to meet present and anticipatedliquidity needs

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Reference Materials • FIL-13-2010: Funding and Liquidity Risk Management • Summer 2017 Supervisory Insights • September 2014 FedLinks (Supervisory Expectations for Contingency Funding Plans) • FIL-84-2008: Liquidity Risk Management • FIL-25-2009: Interest Rate Restrictions on Institutions that are Less than Well Capitalized • FIL-62-2009: Determining Conformance with Interest Rate Restrictions for Less than Well Capitalized Institutions • FIL-69-2009: Process for Determining if an Institution Subject to Interest Rate Restrictions is Operating in a High-Rate Area

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