CMS Case Study

undue over reliance on any one source of funding. o Ensure the Bank has tested the CFP during the previous year. This includes testing market access to secondary funding sources (i.e. correspondent lines). o Ensure the necessary collateral for funding sources is appropriately monitored. o Ensure funding sources include a cushion of liquid assets that are not encumbered or pledged. The size of such cushion should be supported by estimates of liquidity needs performed under the Bank’s stress testing as well as aligned with the Bank’s risk tolerance and risk profile. o Cash flow projections include discrete and cumulative cash flow projections including gaps over specified future time horizons under expected and adverse business conditions.  Determine based on inquiry if the following are considered in managing and assessing liquidity needs, if applicable: o New products being introduced and how these will be funded; o Seasonal fluctuations in deposit volumes and loan demand; o Merger and acquisition activity; o Lower ‐ than ‐ expected deposit growth or higher ‐ than ‐ expected loan growth or similar situations; o Short ‐ term and long ‐ term liquidity needs; o Volatile sources of funding (such as out of market deposits, brokered deposits, and deposits over $250K (non ‐ core)), and replacement plans should these sources deteriorate; o Economic forecast assumptions and their impact on liquidity; and o Effect of off ‐ balance sheet contracts and instruments on liquidity.  Determine that adequate documentation is maintained in support of calculations and/or assumptions used in projecting cash sources and uses.  Obtain an understanding of the Bank's process for conducting liquidity stress tests. Document the procedures performed.  Obtain a copy of the Bank's most recently performed stress test and perform the following: o Ensure the test includes a variety of institution ‐ specific and market ‐ wide events across multiple time horizons. o Ensure the outcomes of the stress tests are used to identify and quantify sources of potential liquidity strain and to analyze possible impacts on the institution's cash flows, liquidity position, profitability, and solvency.  Ensure the stress tests are used to ensure that current exposures are consistent with the Bank's established liquidity risk tolerance.

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