CMS Case Study

Liquidity Management

 Ensure the Liquidity Policy and Contingency Funding Plan (CFP) has been approved by the Board of Directors (BOD) within the previous year.  Determine the current status of prior internal audit recommendations  Determine the current status of findings related to Liquidity noted in the most recent regulatory examination report.  Review the Bank’s Liquidity Policy and ensure it accomplishes the following: o Clearly identifies the individuals or committee responsible for implementing and making liquidity risk decisions. o Establishes reasonable liquidity risk tolerances based on the Bank’s complexity, business mix, liquidity risk profile, and its role in the financial system. o Establishes procedures to remediate any limit breaches that may or may not require immediate attention. o 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.  Review the CFP and ensure it accomplishes the following: o Establishes clear lines of responsibility. o Identifies a range of stress environments/events. o Provides levels of severity and timing. o Includes funding sources and needs. o Establishes liquidity event management processes (i.e., crisis management teamwith realistic action plans for different levels of stress). o Establishes a monitoring framework for contingent events (i.e., early warning indicators and event triggers tailored to the Bank’s risk profile).  Where the Bank delegates liquidity risk management responsibilities to the ALCO (or similar senior management committee), ensure such committee is comprised of individuals with knowledge of multiple business lines.  Review a sample of ALCO and BOD minutes to ensure the following: o ALCO minutes are provided to the BOD. o Liquidity reporting to the ALCO and BOD are presented in accordance with the Policy timing requirements. o The following items are reviewed and discussed as deemed appropriate: cash flow gaps, cash flow projections, asset and funding concentrations, critical assumptions used in cash flow projections, key early warning or risk indicators, funding availability, status of contingent funding sources, and collateral usage.  Perform the following with regard to the Bank’s funding sources/uses: o Ensure funding sources are diversified in the short ‐ , medium ‐ and long ‐ term. o Ensure funding concentrations are being avoided in general in order to prevent

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