Funding and Liquidity Risk Management

In 2010, the Federal banking agencies, and the NCUA, in conjunction with the Conference of State Bank Supervisors, issued a policy statement summarizing the principles of sound liquidity risk management that the agencies previously issued and, where appropriate, brought them into conformance with the "Principles for Sound Liquidity Risk Management and Supervision" issued by the Basel Committee on Banking and Supervision in September 2008. Section 14 of the Policy Statement provides that institutions should consider liquidity costs, benefits, and risks in their 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 the institution’s liquidity would be affected under stressed conditions. Section 20 of the Policy Statement states that 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. Institutions also should report on the use and availability of government support, such as lending and guarantee programs, and the implications on liquidity positions, particularly because these programs generally are temporary or reserved as a source for contingent funding.

The latest form for Funding and Liquidity Risk Management expires 2022-06-30 and can be found here.

Quantification and Attribution of Liquidity Risks - Large Banks

Federal Enterprise Architecture: Economic Development - Financial Sector Oversight