Bank Analysis School September 2023 - Presentations & Resources

Internal Use Only

Liquidity is Rated On… • The adequacy of liquidity sources compared to present and future needs and the ability to meet liquidity needs without adversely affecting operations or overall condition. • The availability of assets readily convertible to cash without undue loss. • Access to money markets and other sources of funding. • The level of diversification of funding sources, both on- and off-balance sheet. • The degree of reliance on short-term, volatile sources of funds, including borrowings and brokered deposits, to fund longer term assets. • The trend and stability of deposits. • The ability to securitize and sell certain pools of assets. • The capability of management to properly identify, measure, monitor, and control the institution’s liquidity position, including the effectiveness of funds management strategies, liquidity policies, management information systems, and contingency funding plans.

Internal Use Only

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 reliance on funding source not available in financial stress or adverse market conditions. Assessment of a liquidity position would 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, information systems, and contingency funding plans

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• Liquidity levels are deficient • Inadequate funds 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 viability of the institution is threatened • Immediate external financial assistance to meet maturing obligations or operational liquidity is required

• Satisfactory liquidity position • Fundsmanagement practices are adequate • Funding sources are sufficient and on acceptable terms •Modest weaknesses in fundmanagement practices

• Levels of liquidityare in need of improvement •May lack ready access to funding sources on reasonable terms • Evidence of significant weaknesses in funds management practices

• Strong liquidity levels •Well-developed funds management practices • Reliable access to sufficient funding sources with favorable terms • Ability to meet present and anticipated liquidity needs