Liquidity Risk Management measurement, monitoring and reporting

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DEPARTMENT OF THE TREASURY
Internal Revenue Service
Proposed Collection; Comment
Request for Revenue Procedure RP–
125212–09, Rules for Certain Rental
Real Estate Activities

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AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Notice and request for
comments.
SUMMARY: The Department of the
Treasury, as part of its continuing effort
to reduce paperwork and respondent
burden, invites the general public and
other Federal agencies to take this
opportunity to comment on proposed
and/or continuing information
collections, as required by the
Paperwork Reduction Act of 1995,
Public Law 104–13 (44 U.S.C.
3506(c)(2)(A)). Currently, the IRS is
soliciting comments concerning
Revenue Procedure RP–125212–09,
Rules for Certain Rental Real Estate
Activities.
DATES: Written comments should be
received on or before May 21, 2010 to
be assured of consideration.
ADDRESSES: Direct all written comments
to R. Joseph Durbala Internal Revenue
Service, Room 6129, 1111 Constitution
Avenue, NW., Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT:
Requests for additional information or
copies of the form and instructions
should be directed to Joel Goldberger
(202)–927–9368, at Internal Revenue
Service, Room 6129, 1111 Constitution
Avenue, NW., Washington, DC 20224,
or through the Internet at
joel.p.goldberger@irs.gov.
SUPPLEMENTARY INFORMATION:
Title: RP–125212–09 Rules for Certain
Rental Real Estate Activities.
Abstract: This Revenue Procedure
Grants Relief Under Section 1.469–9(g)
for Certain Taxpayers to Make Late
Elections to Treat All Interests in Rental
Real Estate as a Single Rental Real Estate
Activity.
Current Actions: There is no change
in the paperwork burden previously
approved by OMB. This form is being
submitted for renewal purposes only.
Type of Review: This is a new
collection.
Affected Public: Individuals or
Households.
Estimated Number of Respondents:
2000.
Estimated Total Annual Burden
Hours: 300.
The following paragraph applies to all
of the collections of information covered
by this notice:

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An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid OMB control number.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Request for Comments: Comments
submitted in response to this notice will
be summarized and/or included in the
request for OMB approval. All
comments will become a matter of
public record.
Comments are invited on: (a) Whether
the collection of information is
necessary for the proper performance of
the functions of the agency, including
whether the information shall have
practical utility; (b) the accuracy of the
agency’s estimate of the burden of the
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and (e) estimates of capital or start-up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
Approved: March 11, 2010.
R. Joseph Durbala,
IRS Supervisory Tax Analyst.
[FR Doc. 2010–6151 Filed 3–19–10; 8:45 am]
BILLING CODE 4830–01–P

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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
[Docket ID OCC–2010–0004]

FEDERAL RESERVE SYSTEM
[Docket No. OP–1362]

FEDERAL DEPOSIT INSURANCE
CORPORATION
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[Docket ID OTS–2010–0005]

NATIONAL CREDIT UNION
ADMINISTRATION
Interagency Policy Statement on
Funding and Liquidity Risk
Management
AGENCY: Office of the Comptroller of the
Currency, Treasury (OCC); Board of
Governors of the Federal Reserve
System (FRB); Federal Deposit
Insurance Corporation (FDIC); Office of
Thrift Supervision, Treasury (OTS); and
National Credit Union Administration
(NCUA).
ACTION: Final policy statement.
SUMMARY: The OCC, FRB, FDIC, OTS,
and NCUA (the agencies) in conjunction
with the Conference of State Bank
Supervisors (CSBS), are adopting this
policy statement. The policy statement
summarizes the principles of sound
liquidity risk management that the
agencies have issued in the past and,
when appropriate, supplements them
with the ‘‘Principles for Sound Liquidity
Risk Management and Supervision’’
issued by the Basel Committee on
Banking Supervision (BCBS) in
September 2008.1 This policy statement
emphasizes supervisory expectations for
all depository institutions including
banks, thrifts, and credit unions.
DATES: This policy statement is effective
on May 21, 2010. Comments on the
Paperwork Reduction Act burden
estimates only may be submitted on or
before April 21, 2010.
FOR FURTHER INFORMATION CONTACT:
OCC: Kerri Corn, Director for Market
Risk, Credit and Market Risk Division,
(202) 874–5670 or J. Ray Diggs, Group
Leader: Balance Sheet Management,
Credit and Market Risk Division, (202)
874–5670.
1 NCUA is not a member of the Basel Committee
on Banking Supervision and federally insured
credit unions are not directly referenced in the
principles issued by the Committee.

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Federal Register / Vol. 75, No. 54 / Monday, March 22, 2010 / Notices
FRB: James Embersit, Deputy
Associate Director, Market and
Liquidity Risk, 202–452–5249 or Mary
Arnett, Supervisory Financial Analyst,
Market and Liquidity Risk, 202–721–
4534 or Brendan Burke, Supervisory
Financial Analyst, Supervisory Policy
and Guidance, 202–452–2987.
FDIC: Kyle Hadley, Chief Capital
Markets Examination Support, (202)
898–6532.
OTS: Rich Gaffin, Financial Analyst,
Risk Modeling and Analysis, (202) 906–
6181or Marvin Shaw, Senior Attorney,
Regulations and Legislation Division,
(202) 906–6639.
NCUA: Amy Stroud, Program Officer,
Office of Examination and Insurance,
(703) 518–6372.
SUPPLEMENTARY INFORMATION:
I. Background
The recent turmoil in the financial
markets clearly demonstrated the
importance of good liquidity risk
management to the safety and
soundness of financial institutions. In
light of this experience, supervisors
worked on an international and national
level through various groups 2 to assess
the lessons learned on individual
institutions’ management of liquidity
risk and inform future supervisory
efforts on this topic. As one result of
these efforts, the Basel Committee on
Banking Supervision issued in
September 2008, Principles for Sound
Liquidity Risk Management and
Supervision, which contains 17
principles detailing international
supervisory guidance for sound
liquidity risk management.

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II. Comments on the Proposed Policy
Statement
On July 6, 2009, the agencies
requested public comment on all
aspects of a proposed interagency policy
statement 3 on funding and liquidity risk
management. The comment period
closed on September 4, 2009. The
agencies received 22 letters from
financial institutions, bank consultants,
industry trade groups, and individuals.
Overall, the commenters generally
supported the agencies’ efforts to
consolidate and supplement supervisory
expectations for liquidity risk
management.
Many commenters expressed concern
regarding the proposed policy
statement’s articulation of the principle
that separately regulated entities would
2 Significant international groups addressing
these issues include the Basel Committee on
Banking Supervision (BCBS), Senior Supervisors
Group, and the Financial Stability Board.
3 74 FR 32035, (July 9, 2009).

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be expected to maintain liquidity
commensurate with their own profiles
on a stand-alone basis. These
commenters indicated that the language
in the proposed statement suggested
that each regulated entity affiliated with
a parent financial institution would be
required to maintain its own cushion of
liquid assets. This could result in
restrictions on the movement of
liquidity within an organization in a
time of stress. Such restrictions are
commonly referred to as ‘‘trapped pools
of liquidity’’. These commenters assert
that there are advantages to maintaining
liquidity on a centralized basis that
were evident during the current market
disruption. Further, they assert that
requiring separate pools of liquidity
may discourage the use of operating
subsidiaries.
The agencies recognize the need for
clarification of the principles
surrounding the management of
liquidity with respect to the
circumstances and responsibilities of
various types of legal entities and
supervisory interests pertaining to them,
and, therefore, have clarified the scope
of application of the policy statement
with regard to the maintenance of
liquidity on a legal entity basis.
Specifically, the policy statement
indicates that the agencies expect
depository institutions to maintain
adequate liquidity both at the
consolidated level and at significant
legal entities. The agencies recognize
that a depository institution’s approach
to liquidity risk management will
depend on the scope of its business
operations, business mix, and other
legal or operational constraints. As an
overarching principle, depository
institutions should maintain sufficient
liquidity to ensure compliance during
economically stressed periods with
applicable legal and regulatory
restrictions on the transfer of liquidity
among regulated entities. The agencies
have modified the language in the
policy statement to reflect this view.
The principles of liquidity risk
management articulated in this policy
statement are broadly applicable to bank
and thrift holding companies, and noninsured subsidiaries of holding
companies. However, because such
institutions may face unique liquidity
risk profiles and liquidity management
challenges, the Federal Reserve and
Office of Thrift Supervision are
articulating the applicability of the
policy statement’s principles to these
institutions in transmittal letters of the
policy statement to their regulated
institutions. As a result, the guidance
for holding companies contained in the
original proposal issued for comment

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has been omitted from this final policy
statement.
Many commenters expressed concern
over whether the agencies were being
too prescriptive in the policy statement
regarding expectations for contingency
funding plans (CFPs). These
commenters asserted that there needs to
be flexibility in the design of CFPs such
that institutions can respond quickly to
rapidly moving events that may not
have been anticipated during the design
of the CFP. Other commenters asked
whether the policy statement requires
institutions to use certain funding
sources (e.g., FHLB advances or
brokered deposits) in order to show
diversification of funding within their
CFP.
The agencies believe that the policy
statement provides adequate flexibility
in supervisory expectations for the
development and use of CFPs. In fact
the policy statement provides a basic
framework that allows for compliance
across a broad range of business models
whether financial institutions are large
or small. While the policy statement
addresses the need to diversify an
institution’s funding sources, there is no
requirement to use a particular funding
source. The agencies believe that a
diversification of funding sources
strengthens an institution’s ability to
withstand idiosyncratic and market
wide liquidity shocks.
Many commenters representing
financial institution trade organizations
(both domestic and international) and
special-purpose organizations such as
banker’s banks and clearing house
organizations expressed concern over
the treatment of federal funds purchased
as a concentration of funding. As of this
writing, under a separate issuance, the
agencies issued for public comment,
‘‘Correspondent Concentrations Risks.’’ 4
That guidance covers supervisory
expectations for the risks that can occur
in correspondent relationships. The
draft guidance can be found at http://
www.occ.treas.gov/fr/fedregister/
74fr48956.pdf.
Some commenters expressed concern
over limiting the high-quality liquid
assets used in the liquidity buffer to
securities such as U.S. Treasuries. These
commenters assert that limiting the
liquidity buffer to these instruments
would limit diversification of funding
sources and potentially harm market
liquidity.
The agencies agree with some
comments on the need for a liquidity
buffer of unencumbered high-quality
assets sized to cover an institution’s risk
4 NCUA did not participate in this proposed
guidance.

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given an appropriate stress test. The
agencies believe that such buffers form
an essential part of an effective liquidity
risk management system. The question
centers on the composition of assets that
make up an institution’s liquidity
buffer. This is an issue that not only
resonates with this domestic policy
statement but with the Basel Committee
on Banking Supervision’s (BCBS)
‘‘Principles for Sound Liquidity Risk
Management and Supervision.’’ It is the
intention of the agencies for institutions
to maintain a buffer of liquid assets that
are of such high quality that they can be
easily and immediately converted into
cash. Additionally, these assets should
have little or no loss in value when
converted into cash. In addition to the
example used in the policy statement,
other examples of high-quality liquid
assets may include government
guaranteed debt, excess reserves at the
Federal Reserve, and securities issued
by U.S. government sponsored agencies.
The policy statement was amended to
include additional examples.
Some commenters expressed concern
over supervisory expectations for CFP
testing. These commenters assert that
the agencies need to clarify their
expectations for testing of components
of the CFP.
The agencies agreed with the
commenters and have amended the
policy statement to include a
recognition that testing of certain
elements of the CFP may be impractical.
For example, this may include the sale
of assets in which the sale of such assets
may have unintended market
consequences. However, other
components of the CFP can and should
be tested (e.g., operational components
such as ensuring that roles and
responsibilities are up-to-date and
appropriate; ensuring that legal and
operational documents are current and
appropriate; and ensuring that cash
collateral can be moved where and
when needed and back-up liquidity
lines can be drawn).
Two credit union commenters
questioned the need for NCUA to adopt
the proposed policy statement in light of
existing guidance in NCUA’s Examiner’s
Guide. The commenters questioned the
appropriateness of imposing new
requirements on credit unions. The
purpose of the policy statement is to
reiterate the process and liquidity risk
management measures that depository
institutions, including federally insured
credit unions, should follow to
appropriately manage related risks. The
policy statement does not impose
requirements and contemplates
flexibility in its application. The policy
statement is also not intended to replace

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the NCUA’s Examiner’s Guide but
provides a uniform set of sound
business practices, with the expectation
that each institution will scale the
guidance to its complexity and risk
profile. The policy statement, when
issued by NCUA, will likely be an
attachment to an NCUA Letter to Credit
Unions. The letter will provide
additional guidance to federally insured
credit unions on NCUA’s expectations.
The two credit union commenters also
characterized the policy statement as
imposing additional burden on federally
insured credit unions, specifically as it
relates to stress testing and overall
liquidity management reporting.
Depending on a credit union’s risk
profile, such testing and reporting is
already expected. NCUA ‘‘Letter to
Credit Unions 02–CU–05, Examination
Program Liquidity Questionnaire’’,
issued in March of 2002, includes
examiner review of stress testing
performed as well as an overall
assessment of the adequacy of
management reporting.5 The policy
statement does not add to a credit
union’s current burden in this regard
but rather clarifies NCUA’s expectation
for those credit unions with risk profiles
warranting a higher degree of liquidity
risk management.
Lastly, the two credit union
commenters encouraged NCUA to not
include corporate credit unions within
the scope of this policy statement as the
corporate credit union network may be
restructured. NCUA’s intent is for the
policy statement to apply only to
federally insured, natural person credit
unions, not corporate credit unions and
the policy statement has been modified
to clarify that point.
Accordingly, for all the reasons
discussed above, the agencies have
determined that it is appropriate to
adopt as final the proposed policy
statement as amended.
III. Paperwork Reduction Act
In accordance with section 3512 of
the Paperwork Reduction Act of 1995,
44 U.S.C. 3501–3521 (PRA), the
Agencies may not conduct or sponsor,
and the respondent is not required to
respond to, an information collection
unless it displays a currently valid
Office of Management and Budget
(OMB) control number. The information
collection requirements contained in
this guidance have been submitted to
OMB for approval.
On July 6, 2009,6 the agencies sought
comment on the burden estimates for
5 The letter can be found at NCUA’s Web site at
http://www.ncua.gov/letters/2002/02–CU–05.html.
6 74 FR 32035.

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this information collection. The
comments are summarized below.
Comments continue to be invited on:
(a) Whether the collection of
information is necessary for the proper
performance of the Federal banking
agencies’ functions, including whether
the information has practical utility;
(b) The accuracy of the estimates of
the burden of the information
collection, including the validity of the
methodology and assumptions used;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
the information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and
(e) Estimates of capital or start up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
Comments on these questions should
be directed to:
OCC: Communications Division,
Office of the Comptroller of the
Currency, Mailstop 2–3, Attention
1557–NEW, 250 E Street, SW.,
Washington, DC 20219. In addition
comments may be sent by fax to (202)
874–5274, or by electronic mail to
regs.comments@occ.treas.gov. You may
personally inspect and photocopy
comments at the OCC, 250 E Street,
SW., Washington, DC. For security
reasons, the OCC requires that visitors
make an appointment to inspect
comments. You may do so by calling
(202) 874–4700. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
FRB: You may submit comments,
identified by Docket No. OP–1362, by
any of the following methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail:
regs.comments@federalreserve.gov.
Include the docket number in the
subject line of the message.
• FAX: 202/452–3819 or 202/452–
3102.
• Mail: Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551.

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Federal Register / Vol. 75, No. 54 / Monday, March 22, 2010 / Notices
All public comments are available
from the FRB’s Web site at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed in electronic or
paper form in Room MP–500 of the
FRB’s Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m.
on weekdays.
FDIC: Interested parties are invited to
submit written comments. All
comments should refer to the name of
the collection, ‘‘Liquidity Risk
Management.’’ Comments may be
submitted by any of the following
methods:
• http://www.FDIC.gov/regulations/
laws/federal/propose.html.
• E-mail: comments@fdic.gov.
• Mail: Leneta G. Gregorie
(202.898.3719), Counsel, Federal
Deposit Insurance Corporation,
PA1730–3000, 550 17th Street, NW.,
Washington, DC 20429.
• Hand Delivery: Comments may be
hand-delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street), on business days
between 7 a.m. and 5 p.m.
OTS: Send comments, referring to the
collection by title of the proposal or by
OMB approval number, to OMB and
OTS at these addresses: Office of
Information and Regulatory Affairs,
Attention: Desk Officer for OTS, U.S.
Office of Management and Budget, 725–
17th Street, NW., Room 10235,
Washington, DC 20503, or by fax to
(202) 395–6974; and Information
Collection Comments, Chief Counsel’s
Office, Office of Thrift Supervision,
1700 G Street, NW., Washington, DC
20552, by fax to (202) 906–6518, or by
e-mail to
infocollection.comments@ots.treas.gov.
OTS will post comments and the related
index on the OTS Internet Site at http://
www.ots.treas.gov. In addition,
interested persons may inspect
comments at the Public Reading Room,
1700 G Street, NW., by appointment. To
make an appointment, call (202) 906–
5922, send an e-mail to
public.info@ots.treas.gov, or send a
facsimile transmission to (202) 906–
7755.
NCUA: You may submit comments by
any of the following methods (Please
send comments by one method only):
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
NCUA Web Site: http://
www.ncua.gov/Resources/
RegulationsOpinionsLaws/

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ProposedRegulations.aspx Follow the
instructions for submitting comments.
• E-mail: Address to
regcomments@ncua.gov. Include ‘‘[Your
name] Comments on Proposed
Interagency Guidance—Funding and
Liquidity Risk Management,’’ in the email subject line.
• Fax: (703) 518–6319. Use the
subject line described above for e-mail.
• Mail: Address to Mary F. Rupp,
Secretary of the Board, National Credit
Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428.
• Hand Delivery/Courier: Same as
mail address.
Public inspection: All public
comments are available on the agency’s
Web site at http://www.ncua.gov/
Resources/RegulationsOpinionsLaws/
ProposedRegulations.aspx as submitted,
except as may not be possible for
technical reasons. Public comments will
not be edited to remove any identifying
or contact information. Paper copies of
comments may be inspected in NCUA’s
law library, at 1775 Duke Street,
Alexandria, Virginia 22314, by
appointment weekdays between 9 a.m.
and 3 p.m. To make an appointment,
call (703) 518–6546 or send an e-mail to
_OGC Mail @ncua.gov.
You should send a copy of your
comments to the OMB Desk Officer for
the agencies, by mail to U.S. Office of
Management and Budget, 725 17th
Street, NW., #10235, Washington, DC
20503, or by fax to (202) 395–6974.
Title of Information Collection:
Funding and Liquidity Risk
Management.
OMB Control Numbers: New
collection; to be assigned by OMB.
Abstract: Section 14 states that
institutions should consider liquidity
costs, benefits, and risks in strategic
planning and budgeting processes.
Significant business activities should be
evaluated for liquidity risk exposure as
well as profitability. More complex and
sophisticated institutions should
incorporate liquidity costs, benefits, and
risks in the internal product pricing,
performance measurement, and new
product approval process for all
material business lines, products and
activities. Incorporating the cost of
liquidity into these functions should
align the risk-taking incentives of
individual business lines with the
liquidity risk exposure their activities
create for the institution as a whole. The
quantification and attribution of
liquidity risks should be explicit and
transparent at the line management
level and should include consideration
of how liquidity would be affected
under stressed conditions.

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Section 20 would require that
liquidity risk reports provide aggregate
information with sufficient supporting
detail to enable management to assess
the sensitivity of the institution to
changes in market conditions, its own
financial performance, and other
important risk factors. Institutions
should also report on the use of and
availability of government support, such
as lending and guarantee programs, and
implications on liquidity positions,
particularly since these programs are
generally temporary or reserved as a
source for contingent funding.
Comment Summary: The OCC, FRB,
and OTS received one comment
regarding its burden estimates under the
Paperwork Reduction Act. The
comment, which was from a trade
association, stated that some community
banks with less than $10 billion in
assets reported to them that the estimate
of 80 burden hours for small
respondents is accurate. Other
community banks estimated that it
would take significantly longer,
especially in the first year of
implementation. The agencies have
determined that, on average, the burden
estimate is accurate and, therefore they
have not changed the burden estimates
in the final policy statement.
The NCUA received two comments
from trade organizations regarding the
Paperwork Reduction Act, section III,
items (a) through (e). One commenter
stated that no additional information
should be required of credit unions if
they are following current procedures
addressed in NCUA’s Examiner’s Guide.
Sections 14 and 20 of the proposed
guidance include specific analysis and
reporting expectations based on the
complexity of the credit union and risk
profile. The time estimates provided by
NCUA reflect the estimated amount of
time if credit unions complied with
those expectations. The time burden
estimate is not in addition to complying
with NCUA Examiner’s Guide and such
analysis and reporting are existing
expectations for complex, higher risk
credit unions (refer to Letter to Credit
Unions 02–CU–05). It is difficult to
accurately estimate how many credit
unions would have an implementation
burden for Sections 14 and 20 under the
proposed guidance and the extent of
that additional burden. It is largely
dependent upon the structure of the
credit union and the inherent risks
present, which will fluctuate over time.
The initial comment period for the
guidance solicited comments on time
burden estimates. No specific responses
were provided from credit unions to
support or challenge the time estimates
provided. The time estimates provided

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are an average per credit union based on
asset size alone and may not accurately
reflect the time necessary for a
particular credit union to comply with
the expectations of Sections 14 and 20.
Affected Public:
OCC: National banks, their
subsidiaries, and federal branches or
agencies of foreign banks.
FRB: Bank holding companies, state
member banks, state-licensed branches
and agencies of foreign banks (other
than insured branches), and
corporations organized or operating
under sections 25 or 25A of the Federal
Reserve Act (Agreement corporations
and Edge corporations).
FDIC: Insured state nonmember
banks.
OTS: Federal savings associations and
their affiliated holding companies.
NCUA: Federally-insured credit
unions.
Type of Review: Regular.
Estimated Burden:
OCC:
Number of respondents: 1,560 total
(13 large (over $100 billion in assets), 29
mid-size ($10–$100 billion), 1,518 small
(less than $10 billion)).
Burden Under Section 14: 720 hours
per large respondent, 240 hours per
mid-size respondent, and 80 hours per
small respondent.
Burden under Section 20: 4 hours per
month.
Total estimated annual burden:
212,640 hours.
FRB:
Number of respondents: 6,156 total
(29 large (over $100 billion in assets);
117 mid-size ($10–$100 billion); and
6,010 small (less than $10 billion).
Burden under Section 14: 720 hours
per large respondent, 240 hours per
mid-size respondent, and 80 hours per
small respondent.
Burden under Section 20: 4 hours per
month.
Total estimated annual burden:
825,248 hours.
FDIC:
Number of respondents: 5,076 total
(10 large (over $20 billion in assets), 309
mid-size ($1–$20 billion), 4,757 small
(less than $1 billion)).
Burden under Section 14: 720 hours
per large respondent, 240 hours per
mid-size respondent, and 80 hours per
small respondent.
Burden under Section 20: 4 hours per
month.
Total estimated annual burden:
705,564.
OTS:
Number of respondents: 801 total (14
large (over $100 billion in assets), 104
mid-size ($10–$100 billion), 683 small
(less than $10 billion)).

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Burden under Section 14: 720 hours
per large respondent, 240 hours per
mid-size respondent, and 80 hours per
small respondent.
Burden under Section 20: 4 hours per
month.
Total estimated annual burden:
128,128.
NCUA:
Number of respondents: 7,736 total
(153 large (over $1 billion in assets), 501
mid-size ($250 million to $1 billion),
and 7,082 small (less than $250
million)).
Burden under Section 14: 240 hours
per large respondent, 80 hours per midsize respondent, and 20 hours per small
respondent.
Burden under Section 20: 2 hours per
month.
Total estimated annual burden:
404,104.
IV. Guidance
The text of the Interagency Policy
Statement on Funding and Liquidity
Risk Management is as follows:
Interagency Policy Statement on
Funding and Liquidity Risk
Management
1. The Office of the Comptroller of the
Currency (OCC), Board of Governors of
the Federal Reserve System (FRB),
Federal Deposit Insurance Corporation
(FDIC), the Office of Thrift Supervision
(OTS), and the National Credit Union
Administration (NCUA) (collectively,
the agencies) in conjunction with the
Conference of State Bank Supervisors
(CSBS) 7 are issuing this guidance to
provide consistent interagency
expectations on sound practices for
managing funding and liquidity risk.
The guidance summarizes the principles
of sound liquidity risk management that
the agencies have issued in the past 8
and, where appropriate, harmonizes
7 The various state banking supervisors may
implement this policy statement through their
individual supervisory process.
8 For national banks, see the Comptroller’s
Handbook on Liquidity. For state member banks
and bank holding companies, see the Federal
Reserve’s Commercial Bank Examination Manual
(section 4020), Bank Holding Company Supervision
Manual (section 4010), and Trading and Capital
Markets Activities Manual (section 2030). For state
non-member banks, see the FDIC’s Revised
Examination Guidance for Liquidity and Funds
Management (Trans. No. 2002–01) (Nov. 19, 2001)
as well as Financial Institution Letter 84–2008,
Liquidity Risk Management (August 2008). For
savings associations, see the Office of Thrift
Supervision’s Examination Handbook, section 530,
‘‘Cash Flow and Liquidity Management’’; and the
Holding Companies Handbook, section 600. For
federally insured credit unions, see Letter to Credit
Unions No. 02–CU–05, Examination Program
Liquidity Questionnaire (March 2002). Also see
Basel Committee on Banking Supervision,
‘‘Principles for Sound Liquidity Risk Management
and Supervision,’’ (September 2008).

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these principles with the international
statement recently issued by the Basel
Committee on Banking Supervision
titled ‘‘Principles for Sound Liquidity
Risk Management and Supervision.’’ 9
2. Recent events illustrate that
liquidity risk management at many
financial institutions is in need of
improvement. Deficiencies include
insufficient holdings of liquid assets,
funding risky or illiquid asset portfolios
with potentially volatile short-term
liabilities, and a lack of meaningful cash
flow projections and liquidity
contingency plans.
3. The following guidance reiterates
the process that institutions should
follow to appropriately identify,
measure, monitor, and control their
funding and liquidity risk. In particular,
the guidance re-emphasizes the
importance of cash flow projections,
diversified funding sources, stress
testing, a cushion of liquid assets, and
a formal well-developed contingency
funding plan (CFP) as primary tools for
measuring and managing liquidity risk.
The agencies expect every depository
financial institution 10 to manage
liquidity risk using processes and
systems that are commensurate with the
institution’s complexity, risk profile,
and scope of operations. Liquidity risk
management processes and plans
should be well documented and
available for supervisory review. Failure
to maintain an adequate liquidity risk
management process will be considered
an unsafe and unsound practice.
Liquidity and Liquidity Risk
4. Liquidity is a financial institution’s
capacity to meet its cash and collateral
obligations at a reasonable cost.
Maintaining an adequate level of
liquidity depends on the institution’s
ability to efficiently meet both expected
and unexpected cash flows and
collateral needs without adversely
affecting either daily operations or the
financial condition of the institution.
5. Liquidity risk is the risk that an
institution’s financial condition or
overall safety and soundness is
adversely affected by an inability (or
perceived inability) to meet its
9 Basel Committee on Banking Supervision,
‘‘Principles for Sound Liquidity Risk Management
and Supervision’’, September 2008. See http://
www.bis.org/publ/bcbs144.htm. Federally insured
credit unions are not directly referenced in the
principles issued by the Basel Committee.
10 Unless otherwise indicated, this interagency
guidance uses the term ‘‘depository financial
institutions’’ or ‘‘institutions’’ to include banks,
saving associations, and federally insured natural
person credit unions. Federally insured credit
unions (FICUs) do not have holding company
affiliations, and, therefore, references to holding
companies contained within this guidance are not
applicable to FICUs.

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obligations. An institution’s obligations,
and the funding sources used to meet
them, depend significantly on its
business mix, balance-sheet structure,
and the cash flow profiles of its on- and
off-balance-sheet obligations. In
managing their cash flows, institutions
confront various situations that can give
rise to increased liquidity risk. These
include funding mismatches, market
constraints on the ability to convert
assets into cash or in accessing sources
of funds (i.e., market liquidity), and
contingent liquidity events. Changes in
economic conditions or exposure to
credit, market, operation, legal, and
reputation risks also can affect an
institution’s liquidity risk profile and
should be considered in the assessment
of liquidity and asset/liability
management.

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Sound Practices of Liquidity Risk
Management
6. An institution’s liquidity
management process should be
sufficient to meet its daily funding
needs and cover both expected and
unexpected deviations from normal
operations. Accordingly, institutions
should have a comprehensive
management process for identifying,
measuring, monitoring, and controlling
liquidity risk. Because of the critical
importance to the viability of the
institution, liquidity risk management
should be fully integrated into the
institution’s risk management processes.
Critical elements of sound liquidity risk
management include:
• Effective corporate governance
consisting of oversight by the board of
directors and active involvement by
management in an institution’s control
of liquidity risk.
• Appropriate strategies, policies,
procedures, and limits used to manage
and mitigate liquidity risk.
• Comprehensive liquidity risk
measurement and monitoring systems
(including assessments of the current
and prospective cash flows or sources
and uses of funds) that are
commensurate with the complexity and
business activities of the institution.
• Active management of intraday
liquidity and collateral.
• An appropriately diverse mix of
existing and potential future funding
sources.
• Adequate levels of highly liquid
marketable securities free of legal,
regulatory, or operational impediments,
that can be used to meet liquidity needs
in stressful situations.
• Comprehensive contingency
funding plans (CFPs) that sufficiently
address potential adverse liquidity

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events and emergency cash flow
requirements.
• Internal controls and internal audit
processes sufficient to determine the
adequacy of the institution’s liquidity
risk management process.
Supervisors will assess these critical
elements in their reviews of an
institution’s liquidity risk management
process in relation to its size,
complexity, and scope of operations.
Corporate Governance
7. The board of directors is ultimately
responsible for the liquidity risk
assumed by the institution. As a result,
the board should ensure that the
institution’s liquidity risk tolerance is
established and communicated in such
a manner that all levels of management
clearly understand the institution’s
approach to managing the trade-offs
between liquidity risk and short-term
profits. The board of directors or its
delegated committee of board members
should oversee the establishment and
approval of liquidity management
strategies, policies and procedures, and
review them at least annually. In
addition, the board should ensure that
it:
• Understands the nature of the
liquidity risks of its institution and
periodically reviews information
necessary to maintain this
understanding.
• Establishes executive-level lines of
authority and responsibility for
managing the institution’s liquidity risk.
• Enforces management’s duties to
identify, measure, monitor, and control
liquidity risk.
• Understands and periodically
reviews the institution’s CFPs for
handling potential adverse liquidity
events.
• Understands the liquidity risk
profiles of important subsidiaries and
affiliates as appropriate.
8. Senior management is responsible
for ensuring that board-approved
strategies, policies, and procedures for
managing liquidity (on both a long-term
and day-to-day basis) are appropriately
executed within the lines of authority
and responsibility designated for
managing and controlling liquidity risk.
This includes overseeing the
development and implementation of
appropriate risk measurement and
reporting systems, liquid buffers (e.g.,
cash, unencumbered marketable
securities, and market instruments),
CFPs, and an adequate internal control
infrastructure. Senior management is
also responsible for regularly reporting
to the board of directors on the liquidity
risk profile of the institution.

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9. Senior management should
determine the structure, responsibilities,
and controls for managing liquidity risk
and for overseeing the liquidity
positions of the institution. These
elements should be clearly documented
in liquidity risk policies and
procedures. For institutions comprised
of multiple entities, such elements
should be fully specified and
documented in policies for each
material legal entity and subsidiary.
Senior management should be able to
monitor liquidity risks for each entity
across the institution on an ongoing
basis. Processes should be in place to
ensure that the group’s senior
management is actively monitoring and
quickly responding to all material
developments and reporting to the
boards of directors as appropriate.
10. Institutions should clearly identify
the individuals or committees
responsible for implementing and
making liquidity risk decisions. When
an institution uses an asset/liability
committee (ALCO) or other similar
senior management committee, the
committee should actively monitor the
institution’s liquidity profile and should
have sufficiently broad representation
across major institutional functions that
can directly or indirectly influence the
institution’s liquidity risk profile (e.g.,
lending, investment securities,
wholesale and retail funding).
Committee members should include
senior managers with authority over the
units responsible for executing
liquidity-related transactions and other
activities within the liquidity risk
management process. In addition, the
committee should ensure that the risk
measurement system adequately
identifies and quantifies risk exposure.
The committee also should ensure that
the reporting process communicates
accurate, timely, and relevant
information about the level and sources
of risk exposure.
Strategies, Policies, Procedures, and
Risk Tolerances
11. Institutions should have
documented strategies for managing
liquidity risk and clear policies and
procedures for limiting and controlling
risk exposures that appropriately reflect
the institution’s risk tolerances.
Strategies should identify primary
sources of funding for meeting daily
operating cash outflows, as well as
seasonal and cyclical cash flow
fluctuations. Strategies should also
address alternative responses to various

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adverse business scenarios.11 Policies
and procedures should provide for the
formulation of plans and courses of
actions for dealing with potential
temporary, intermediate-term, and longterm liquidity disruptions. Policies,
procedures, and limits also should
address liquidity separately for
individual currencies, legal entities, and
business lines, when appropriate and
material, and should allow for legal,
regulatory, and operational limits for the
transferability of liquidity as well.
Senior management should coordinate
the institution’s liquidity risk
management with disaster, contingency,
and strategic planning efforts, as well as
with business line and risk management
objectives, strategies, and tactics.
12. Policies should clearly articulate a
liquidity risk tolerance that is
appropriate for the business strategy of
the institution considering its
complexity, business mix, liquidity risk
profile, and its role in the financial
system. Policies should also contain
provisions for documenting and
periodically reviewing assumptions
used in liquidity projections. Policy
guidelines should employ both
quantitative targets and qualitative
guidelines. For example, these
measurements, limits, and guidelines
may be specified in terms of the
following measures and conditions, as
applicable:
• Cash flow projections that include
discrete and cumulative cash flow
mismatches or gaps over specified
future time horizons under both
expected and adverse business
conditions.
• Target amounts of unencumbered
liquid asset reserves.
• Measures used to identify unstable
liabilities and liquid asset coverage
ratios. For example, these may include
ratios of wholesale funding to total
liabilities, potentially volatile retail
(e.g., high-cost or out-of-market)
deposits to total deposits, and other
liability dependency measures, such as
short-term borrowings as a percent of
total funding.
• Asset concentrations that could
increase liquidity risk through a limited
ability to convert to cash (e.g., complex
financial instruments,12 bank-owned
11 In formulating liquidity management strategies,
members of complex banking groups should take
into consideration their legal structures (e.g.,
branches versus separate legal entities and
operating subsidiaries), key business lines, markets,
products, and jurisdictions in which they operate.
12 Financial instruments that are illiquid, difficult
to value, or marked by the presence of cash flows
that are irregular, uncertain, or difficult to model.

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(corporate-owned) life insurance, and
less marketable loan portfolios).
• Funding concentrations that
address diversification of funding
sources and types, such as large liability
and borrowed funds dependency,
secured versus unsecured funding
sources, exposures to single providers of
funds, exposures to funds providers by
market segments, and different types of
brokered deposits or wholesale funding.
• Funding concentrations that
address the term, re-pricing, and market
characteristics of funding sources with
consideration given to the nature of the
assets they fund. This may include
diversification targets for short-,
medium-, and long-term funding;
instrument type and securitization
vehicles; and guidance on
concentrations for currencies and
geographical markets.
• Contingent liability exposures such
as unfunded loan commitments, lines of
credit supporting asset sales or
securitizations, and collateral
requirements for derivatives
transactions and various types of
secured lending.
• Exposures of material activities,
such as securitization, derivatives,
trading, transaction processing, and
international activities, to broad
systemic and adverse financial market
events. This is most applicable to
institutions with complex and
sophisticated liquidity risk profiles.
• Alternative measures and
conditions may be appropriate for
certain institutions.
13. Policies also should specify the
nature and frequency of management
reporting. In normal business
environments, senior managers should
receive liquidity risk reports at least
monthly, while the board of directors
should receive liquidity risk reports at
least quarterly. Depending upon the
complexity of the institution’s business
mix and liquidity risk profile,
management reporting may need to be
more frequent. Regardless of an
institution’s complexity, it should have
the ability to increase the frequency of
reporting on short notice, if the need
arises. Liquidity risk reports should
impart to senior management and the
board a clear understanding of the
institution’s liquidity risk exposure,
compliance with risk limits, consistency
between management’s strategies and
tactics, and consistency between these
strategies and the board’s expressed risk
tolerance.
14. Institutions should consider
liquidity costs, benefits, and risks in
strategic planning and budgeting
processes. Significant business activities
should be evaluated for both liquidity

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risk exposure and profitability. More
complex and sophisticated institutions
should incorporate liquidity costs,
benefits, and risks in the internal
product pricing, performance
measurement, and new product
approval process for all material
business lines, products, and activities.
Incorporating the cost of liquidity into
these functions should align the risktaking incentives of individual business
lines with the liquidity risk exposure
their activities create for the institution
as a whole. The quantification and
attribution of liquidity risks should be
explicit and transparent at the line
management level and should include
consideration of how liquidity would be
affected under stressed conditions.
Liquidity Risk Measurement,
Monitoring, and Reporting
15. The process of measuring liquidity
risk should include robust methods for
comprehensively projecting cash flows
arising from assets, liabilities, and offbalance-sheet items over an appropriate
set of time horizons. For example, time
buckets may be daily for very short
timeframes out to weekly, monthly, and
quarterly for longer time frames. Pro
forma cash flow statements are a critical
tool for adequately managing liquidity
risk. Cash flow projections can range
from simple spreadsheets to very
detailed reports depending upon the
complexity and sophistication of the
institution and its liquidity risk profile
under alternative scenarios. Given the
critical importance that assumptions
play in constructing measures of
liquidity risk and projections of cash
flows, institutions should ensure that
the assumptions used are reasonable,
appropriate, and adequately
documented. Institutions should
periodically review and formally
approve these assumptions. Institutions
should focus particular attention on the
assumptions used in assessing the
liquidity risk of complex assets,
liabilities, and off-balance-sheet
positions. Assumptions applied to
positions with uncertain cash flows,
including the stability of retail and
brokered deposits and secondary market
issuances and borrowings, are especially
important when they are used to
evaluate the availability of alternative
sources of funds under adverse
contingent liquidity scenarios. Such
scenarios include, but are not limited to,
deterioration in the institution’s asset
quality or capital adequacy.
16. Institutions should ensure that
assets are properly valued according to
relevant financial reporting and
supervisory standards. An institution
should fully factor into its risk

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management practices the consideration
that valuations may deteriorate under
market stress and take this into account
in assessing the feasibility and impact of
asset sales on its liquidity position
during stress events.
17. Institutions should ensure that
their vulnerabilities to changing
liquidity needs and liquidity capacities
are appropriately assessed within
meaningful time horizons, including
intraday, day-to-day, short-term weekly
and monthly horizons, medium-term
horizons of up to one year, and longerterm liquidity needs of one year or
more. These assessments should include
vulnerabilities to events, activities, and
strategies that can significantly strain
the capability to generate internal cash.

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Stress Testing
18. Institutions should conduct stress
tests regularly for a variety of
institution-specific and marketwide
events across multiple time horizons.
The magnitude and frequency of stress
testing should be commensurate with
the complexity of the financial
institution and the level of its risk
exposures. Stress test outcomes should
be 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.
Stress tests should also be used to
ensure that current exposures are
consistent with the financial
institution’s established liquidity risk
tolerance. Management’s active
involvement and support is critical to
the effectiveness of the stress testing
process. Management should discuss
the results of stress tests and take
remedial or mitigating actions to limit
the institution’s exposures, build up a
liquidity cushion, and adjust its
liquidity profile to fit its risk tolerance.
The results of stress tests should also
play a key role in shaping the
institution’s contingency planning. As
such, stress testing and contingency
planning are closely intertwined.
Collateral Position Management
19. An institution should have the
ability to calculate all of its collateral
positions in a timely manner, including
the value of assets currently pledged
relative to the amount of security
required and unencumbered assets
available to be pledged. An institution’s
level of available collateral should be
monitored by legal entity, jurisdiction,
and currency exposure, and systems
should be capable of monitoring shifts
between intraday and overnight or term
collateral usage. An institution should
be aware of the operational and timing

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requirements associated with accessing
the collateral given its physical location
(i.e., the custodian institution or
securities settlement system with which
the collateral is held). Institutions
should also fully understand the
potential demand on required and
available collateral arising from various
types of contractual contingencies
during periods of both marketwide and
institution-specific stress.
Management Reporting
20. Liquidity risk reports should
provide aggregate information with
sufficient supporting detail to enable
management to assess the sensitivity of
the institution to changes in market
conditions, its own financial
performance, and other important risk
factors. The types of reports or
information and their timing will vary
according to the complexity of the
institution’s operations and risk profile.
Reportable items may include but are
not limited to 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, or collateral usage. Institutions
should also report on the use of and
availability of government support, such
as lending and guarantee programs, and
implications on liquidity positions,
particularly since these programs are
generally temporary or reserved as a
source for contingent funding.
Liquidity Across Currencies, Legal
Entities, and Business Lines
21. A depository institution should
actively monitor and control liquidity
risk exposures and funding needs
within and across currencies, legal
entities, and business lines. Also,
depository institutions should take into
account operational limitations to the
transferability of liquidity, and should
maintain sufficient liquidity to ensure
compliance during economically
stressed periods with applicable legal
and regulatory restrictions on the
transfer of liquidity among regulated
entities. The degree of centralization in
managing liquidity should be
appropriate for the depository
institution’s business mix and liquidity
risk profile.13 The agencies expect
depository institutions to maintain
adequate liquidity both at the
13 Institutions subject to multiple regulatory
jurisdictions should have management strategies
and processes that recognize the potential
limitations of liquidity transferability, as well as the
need to meet the liquidity requirements of foreign
jurisdictions.

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consolidated level and at significant
legal entities.
22. Regardless of its organizational
structure, it is important that an
institution actively monitor and control
liquidity risks at the level of individual
legal entities, and the group as a whole,
incorporating processes that aggregate
data across multiple systems in order to
develop a group-wide view of liquidity
risk exposures. It is also important that
the institution identify constraints on
the transfer of liquidity within the
group.
23. Assumptions regarding the
transferability of funds and collateral
should be described in liquidity risk
management plans.
Intraday Liquidity Position Management
24. Intraday liquidity monitoring is an
important component of the liquidity
risk management process for institutions
engaged in significant payment,
settlement, and clearing activities. An
institution’s failure to manage intraday
liquidity effectively, under normal and
stressed conditions, could leave it
unable to meet payment and settlement
obligations in a timely manner,
adversely affecting its own liquidity
position and that of its counterparties.
Among large, complex organizations,
the interdependencies that exist among
payment systems and the inability to
meet certain critical payments has the
potential to lead to systemic disruptions
that can prevent the smooth functioning
of all payment systems and money
markets. Therefore, institutions with
material payment, settlement and
clearing activities should actively
manage their intraday liquidity
positions and risks to meet payment and
settlement obligations on a timely basis
under both normal and stressed
conditions. Senior management should
develop and adopt an intraday liquidity
strategy that allows the institution to:
• Monitor and measure expected
daily gross liquidity inflows and
outflows.
• Manage and mobilize collateral
when necessary to obtain intraday
credit.
• Identify and prioritize time-specific
and other critical obligations in order to
meet them when expected.
• Settle other less critical obligations
as soon as possible.
• Control credit to customers when
necessary.
• Ensure that liquidity planners
understand the amounts of collateral
and liquidity needed to perform
payment-system obligations when
assessing the organization’s overall
liquidity needs.

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Diversified Funding
25. An institution should establish a
funding strategy that provides effective
diversification in the sources and tenor
of funding. It should maintain an
ongoing presence in its chosen funding
markets and strong relationships with
funds providers to promote effective
diversification of funding sources. An
institution should regularly gauge its
capacity to raise funds quickly from
each source. It should identify the main
factors that affect its ability to raise
funds and monitor those factors closely
to ensure that estimates of fund raising
capacity remain valid.
26. An institution should diversify
available funding sources in the short, medium-, and long-term.
Diversification targets should be part of
the medium- to long-term funding plans
and should be aligned with the
budgeting and business planning
process. Funding plans should take into
account correlations between sources of
funds and market conditions. Funding
should also be diversified across a full
range of retail as well as secured and
unsecured wholesale sources of funds,
consistent with the institution’s
sophistication and complexity.
Management should also consider the
funding implications of any government
programs or guarantees it uses. As with
wholesale funding, the potential
unavailability of government programs
over the intermediate- and long-tem
should be fully considered in the
development of liquidity risk
management strategies, tactics, and risk
tolerances. Funding diversification
should be implemented using limits
addressing counterparties, secured
versus unsecured market funding,
instrument type, securitization vehicle,
and geographic market. In general,
funding concentrations should be
avoided. Undue over-reliance on any
one source of funding is considered an
unsafe and unsound practice.
27. An essential component of
ensuring funding diversity is
maintaining market access. Market
access is critical for effective liquidity
risk management as it affects both the
ability to raise new funds and to
liquidate assets. Senior management
should ensure that market access is
being actively managed, monitored, and
tested by the appropriate staff. Such
efforts should be consistent with the
institution’s liquidity risk profile and
sources of funding. For example, access
to the capital markets is an important
consideration for most large complex
institutions, whereas the availability of
correspondent lines of credit and other

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sources of wholesale funds are critical
for smaller, less complex institutions.
28. An institution should identify
alternative sources of funding that
strengthen its capacity to withstand a
variety of severe institution-specific and
marketwide liquidity shocks. Depending
upon the nature, severity, and duration
of the liquidity shock, potential sources
of funding include, but are not limited
to, the following:
• Deposit growth.
• Lengthening maturities of
liabilities.
• Issuance of debt instruments.14
• Sale of subsidiaries or lines of
business.
• Asset securitization.
• Sale (either outright or through
repurchase agreements) or pledging of
liquid assets.
• Drawing down committed facilities.
• Borrowing.
Cushion of Liquid Assets
29. Liquid assets are an important
source of both primary (operating
liquidity) and secondary (contingent
liquidity) funding at many institutions.
Indeed, a critical component of an
institution’s ability to effectively
respond to potential liquidity stress is
the availability of a cushion of highly
liquid assets without legal, regulatory,
or operational impediments (i.e.,
unencumbered) that can be sold or
pledged to obtain funds in a range of
stress scenarios. These assets should be
held as insurance against a range of
liquidity stress scenarios including
those that involve the loss or
impairment of typically available
unsecured and/or secured funding
sources. The size of the cushion of such
high-quality liquid assets should be
supported by estimates of liquidity
needs performed under an institution’s
stress testing as well as aligned with the
risk tolerance and risk profile of the
institution. Management estimates of
liquidity needs during periods of stress
should incorporate both contractual and
noncontractual cash flows, including
the possibility of funds being
withdrawn. Such estimates should also
assume the inability to obtain unsecured
and uninsured funding as well as the
loss or impairment of access to funds
secured by assets other than the safest,
most liquid assets.
14 Federally insured credit unions can borrow
funds (which includes issuing debt) as given in
section 106 of the Federal Credit Union Act
(FCUA). Section 106 of the FCUA as well as section
741.2 of the NCUA Rules and Regulations establish
specific limitations on the amount that can be
borrowed. Federal Credit Unions can borrow from
natural persons in accordance with the
requirements of part 701.38 of the NCUA Rules and
Regulations.

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30. Management should ensure that
unencumbered, highly liquid assets are
readily available and are not pledged to
payment systems or clearing houses.
The quality of unencumbered liquid
assets is important as it will ensure
accessibility during the time of most
need. An institution could use its
holdings of high-quality securities, for
example, U.S. Treasury securities,
securities issued by U.S. governmentsponsored agencies, excess reserves at
the central bank or similar instruments,
and enter into repurchase agreements in
response to the most severe stress
scenarios.
Contingency Funding Plan 15
31. All financial institutions,
regardless of size and complexity,
should have a formal CFP that clearly
sets out the strategies for addressing
liquidity shortfalls in emergency
situations. A CFP should delineate
policies to manage a range of stress
environments, establish clear lines of
responsibility, and articulate clear
implementation and escalation
procedures. It should be regularly tested
and updated to ensure that it is
operationally sound. For certain
components of the CFP, affirmative
testing (e.g., liquidation of assets) may
be impractical. In these instances,
institutions should be sure to test
operational components of the CFP. For
example, ensuring that roles and
responsibilities are up-to-date and
appropriate; ensuring that legal and
operational documents are up-to-date
and appropriate; and ensuring that cash
and collateral can be moved where and
when needed, and ensuring that
contingent liquidity lines can be drawn
when needed.
32. Contingent liquidity events are
unexpected situations or business
conditions that may increase liquidity
risk. The events may be institutionspecific or arise from external factors
and may include:
• The institution’s inability to fund
asset growth.
• The institution’s inability to renew
or replace maturing funding liabilities.
• Customers unexpectedly exercising
options to withdraw deposits or exercise
off-balance-sheet commitments.
• Changes in market value and price
volatility of various asset types.
• Changes in economic conditions,
market perception, or dislocations in the
financial markets.
15 Financial institutions that have had their
liquidity supported by temporary government
programs administered by the Department of the
Treasury, Federal Reserve and/or FDIC should not
base their liquidity strategies on the belief that such
programs will remain in place indefinitely.

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• Disturbances in payment and
settlement systems due to operational or
local disasters.
33. Insured institutions should be
prepared for the specific contingencies
that will be applicable to them if they
become less than Well Capitalized
pursuant to Prompt Correction Action
(PCA) provisions under the Federal
Deposit Insurance Corporation
Improvement Act.16 Contingencies may
include restricted rates paid for
deposits, the need to seek approval from
the FDIC/NCUA to accept brokered
deposits, and the inability to accept any
brokered deposits.17
34. A CFP provides a documented
framework for managing unexpected
liquidity situations. The objective of the
CFP is to ensure that the institution’s
sources of liquidity are sufficient to
fund normal operating requirements
under contingent events. A CFP also
identifies alternative contingent
liquidity resources 18 that can be
employed under adverse liquidity
circumstances. An institution’s CFP
should be commensurate with its
complexity, risk profile, and scope of
operations. As macroeconomic and
institution-specific conditions change,
CFPs should be revised to reflect these
changes
35. Contingent liquidity events can
range from high-probability/low-impact
events to low-probability/high-impact
events. Institutions should incorporate
planning for high-probability/lowimpact liquidity risks into the day-today management of sources and uses of
funds. Institutions can generally
accomplish this by assessing possible
variations around expected cash flow
projections and providing for adequate
liquidity reserves and other means of
raising funds in the normal course of
business. In contrast, all financial
institution CFPs will typically focus on
16 See 12 U.S.C. 1831o; 12 CFR 6 (OCC), 12 CFR
208.40 (FRB), 12 CFR 325.101 (FDIC), and 12 CFR
565 (OTS) and 12 U.S.C. 1790d; 12 CFR 702
(NCUA).
17 Section 38 of the FDI Act (12 U.S.C. 1831o)
requires insured depository institutions that are not
well capitalized to receive approval prior to
engaging in certain activities. Section 38 restricts or
prohibits certain activities and requires an insured
depository institution to submit a capital restoration
plan when it becomes undercapitalized. Section
216 of the Federal Credit Union Act and part 702
of the NCUA Rules and Regulations establish the
requirements and restrictions for federally insured
credit unions under Prompt Corrective Action. For
brokered, nonmember deposits, additional
restrictions apply to federal credit unions as given
in parts 701.32 and 742 of the NCUA Rules and
Regulations.
18 There may be time constraints, sometimes
lasting weeks, encountered in initially establishing
lines with FRB and/or FHLB. As a result, financial
institutions should plan to have these lines set up
well in advance.

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events that, while relatively infrequent,
could significantly impact the
institution’s operations. A CFP should:
• Identify Stress Events. Stress events
are those that may have a significant
impact on the institution’s liquidity
given its specific balance-sheet
structure, business lines, organizational
structure, and other characteristics.
Possible stress events may include
deterioration in asset quality, changes in
agency credit ratings, PCA capital
categories and CAMELS 19 ratings
downgrades, widening of credit default
spreads, operating losses, declining
financial institution equity prices,
negative press coverage, or other events
that may call into question an
institution’s ability to meet its
obligations.
• Assess Levels of Severity and
Timing. The CFP should delineate the
various levels of stress severity that can
occur during a contingent liquidity
event and identify the different stages
for each type of event. The events,
stages, and severity levels identified
should include temporary disruptions,
as well as those that might be more
intermediate term or longer-term.
Institutions can use the different stages
or levels of severity identified to design
early-warning indicators, assess
potential funding needs at various
points in a developing crisis, and
specify comprehensive action plans.
The length of the scenario will be
determined by the type of stress event
being modeled and should encompass
the duration of the event.
• Assess Funding Sources and Needs.
A critical element of the CFP is the
quantitative projection and evaluation
of expected funding needs and funding
capacity during the stress event. This
entails an analysis of the potential
erosion in funding at alternative stages
or severity levels of the stress event and
the potential cash flow mismatches that
may occur during the various stress
levels. Management should base such
analysis on realistic assessments of the
behavior of funds providers during the
event and incorporate alternative
contingency funding sources. The
analysis also should include all material
on- and off-balance-sheet cash flows and
their related effects. The result should
be a realistic analysis of cash inflows,
outflows, and funds availability at
different time intervals during the
potential liquidity stress event in order
19 Federally insured credit unions are evaluated
using the ‘‘CAMEL’’ rating system, which is
substantially similar to the ‘‘CAMELS’’ system
without the ‘‘S’’ component for rating Sensitivity to
market risk. Information on NCUA’s rating system
can be found in Letter to Credit Unions 07–CU–12,
CAMEL Rating System.

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to measure the institution’s ability to
fund operations. Common tools to
assess funding mismatches include:
Æ Liquidity gap analysis—A cash flow
report that essentially represents a base
case estimate of where funding
surpluses and shortfalls will occur over
various future time frames.
Æ Stress tests—A pro forma cash flow
report with the ability to estimate future
funding surpluses and shortfalls under
various liquidity stress scenarios and
the institution’s ability to fund expected
asset growth projections or sustain an
orderly liquidation of assets under
various stress events.
• Identify Potential Funding Sources.
Because liquidity pressures may spread
from one funding source to another
during a significant liquidity event,
institutions should identify alternative
sources of liquidity and ensure ready
access to contingent funding sources. In
some cases, these funding sources may
rarely be used in the normal course of
business. Therefore, institutions should
conduct advance planning and periodic
testing to ensure that contingent funding
sources are readily available when
needed.
• Establish Liquidity Event
Management Processes. The CFP should
provide for a reliable crisis management
team and administrative structure,
including realistic action plans used to
execute the various elements of the plan
for given levels of stress. Frequent
communication and reporting among
team members, the board of directors,
and other affected managers optimize
the effectiveness of a contingency plan
during an adverse liquidity event by
ensuring that business decisions are
coordinated to minimize further
disruptions to liquidity. Such events
may also require the daily computation
of regular liquidity risk reports and
supplemental information. The CFP
should provide for more frequent and
more detailed reporting as the stress
situation intensifies.
• Establish a Monitoring Framework
for Contingent Events. Institution
management should monitor for
potential liquidity stress events by using
early-warning indicators and event
triggers. The institution should tailor
these indicators to its specific liquidity
risk profile. The early recognition of
potential events allows the institution to
position itself into progressive states of
readiness as the event evolves, while
providing a framework to report or
communicate within the institution and
to outside parties. Early-warning signals
may include, but are not limited to,
negative publicity concerning an asset
class owned by the institution,
increased potential for deterioration in

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the institution’s financial condition,
widening debt or credit default swap
spreads, and increased concerns over
the funding of off-balance-sheet items.
36. To mitigate the potential for
reputation contagion, effective
communication with counterparties,
credit-rating agencies, and other
stakeholders when liquidity problems
arise is of vital importance. Smaller
institutions that rarely interact with the
media should have plans in place for
how they will manage press inquiries
that may arise during a liquidity event.
In addition, groupwide contingency
funding plans, liquidity cushions, and
multiple sources of funding are
mechanisms that may mitigate
reputation concerns.
37. In addition to early-warning
indicators, institutions that issue public
debt, use warehouse financing,
securitize assets, or engage in material
over-the-counter derivative transactions
typically have exposure to event triggers
embedded in the legal documentation
governing these transactions.
Institutions that rely upon brokered
deposits should also incorporate PCArelated downgrade triggers into their
CFPs since a change in PCA status could
have a material bearing on the
availability of this funding source.
Contingent event triggers should be an
integral part of the liquidity risk
monitoring system. Institutions that
originate and/or purchase loans for asset
securitization programs pose heightened
liquidity risk concerns due to the
unexpected funding needs associated
with an early amortization event or
disruption of warehouse funding.
Institutions that securitize assets should
have liquidity contingency plans that
address these risks.
38. Institutions that rely upon secured
funding sources also are subject to
potentially higher margin or collateral
requirements that may be triggered upon
the deterioration of a specific portfolio
of exposures or the overall financial
condition of the institution. The ability
of a financially stressed institution to
meet calls for additional collateral
should be considered in the CFP.
Potential collateral values also should

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be subject to stress tests since
devaluations or market uncertainty
could reduce the amount of contingent
funding that can be obtained from
pledging a given asset. Additionally,
triggering events should be understood
and monitored by liquidity managers.
39. Institutions should test various
elements of the CFP to assess their
reliability under times of stress.
Institutions that rarely use the type of
funds they identify as standby sources
of liquidity in a stress situation, such as
the sale or securitization of loans,
securities repurchase agreements,
Federal Reserve discount window
borrowing, or other sources of funds,
should periodically test the operational
elements of these sources to ensure that
they work as anticipated. However,
institutions should be aware that during
real stress events, prior market access
testing does not guarantee that these
funding sources will remain available
within the same time frames and/or on
the same terms.
40. Larger, more complex institutions
can benefit by employing operational
simulations to test communications,
coordination, and decision making
involving managers with different
responsibilities, in different geographic
locations, or at different operating
subsidiaries. Simulations or tests run
late in the day can highlight specific
problems such as difficulty in selling
assets or borrowing new funds at a time
when business in the capital markets
may be less active.
Internal Controls
41. An institution’s internal controls
consist of procedures, approval
processes, reconciliations, reviews, and
other mechanisms designed to provide
assurance that the institution manages
liquidity risk consistent with boardapproved policy. Appropriate internal
controls should address relevant
elements of the risk management
process, including adherence to policies
and procedures, the adequacy of risk
identification, risk measurement,
reporting, and compliance with
applicable rules and regulations.
42. Management should ensure that
an independent party regularly reviews

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and evaluates the various components
of the institution’s liquidity risk
management process. These reviews
should assess the extent to which the
institution’s liquidity risk management
complies with both supervisory
guidance and industry sound practices,
taking into account the level of
sophistication and complexity of the
institution’s liquidity risk profile.20
Smaller, less-complex institutions may
achieve independence by assigning this
responsibility to the audit function or
other qualified individuals independent
of the risk management process. The
independent review process should
report key issues requiring attention
including instances of noncompliance
to the appropriate level of management
for prompt corrective action consistent
with approved policy.
Dated: March 3, 2010.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, March 15, 2010.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, the 4th day of
March 2010.
By order of the Federal Deposit Insurance
Corporation.
Valerie J. Best,
Assistant Executive Secretary.
Dated: March 16, 2010.
By the Office of Thrift Supervision.
John E. Bowman,
Acting Director.
Dated: March 4, 2010.
By the National Credit Union
Administration Board.
Mary F. Rupp,
Secretary of the Board.
[FR Doc. 2010–6137 Filed 3–19–10; 8:45 am]
BILLING CODE 6720–01–P; 4810–33–P; 6210–01–P;
6714–01–P; 7535–01–P
20 This includes the standards established in this
interagency guidance as well as the supporting
material each agency provides in its examination
manuals and handbooks directed at their
supervised institutions. Industry standards include
those advanced by recognized industry associations
and groups.

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