CMS Case Study

Liquidity Policy Relative Importance = 3 Type of Risk Identified = Liquidity CRI reviewed the Bank's Liquidity Policy and ensured it:  Establishes procedures to remediate any limit breaches that may or may not require immediate attention.  Specifies the nature and frequency of management reporting, to include distribution to line management at least monthly and to the BOD at least quarterly (i.e., in a normal business environment), or more frequently for banks with a higher liquidity risk profile or complex business mix. CRI found the Bank's liquidity policy does not address what steps the Bank would take in the event their liquidity monitoring indicated a breach of policy limits. CRI noted the Bank's liquidity policy does not document reporting requirements for management and the Board. CRI recommends the Bank enhance the liquidity policy to document what steps should be taken to address policy violations related to liquidity management and update the policy to address reporting requirements for liquidity management monitoring, particularly the ratios that are being used to monitor liquidity risk. Management’s Response – Liquidity Policy Mrs. CFO will ensure the Liquidity Policy is updated to address these recommendations and is presented for approval at the October Board Meeting. Liquidity Management – Unfunded Commitments Relative Importance = 2 Type of Risk Identified = Liquidity CRI determined if the effect of off ‐ balance sheet contracts and instruments are considered in managing and assessing liquidity needs. Based on a review of the reports used to monitor liquidity and discussions with the CFO, the Bank is considering the impact of unfunded construction loans. However, it does not appear the Bank is considering unfunded HELOCs and working capital lines of credit in its liquidity management model. CRI recommends the Bank estimate how much of its unfunded commitments, such as lines of credit, would need to be funded to ensure the liquidity monitoring process encompasses future uses of these unfunded commitments.

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