Recent turmoil in the financial markets emphasizes the importance of effective
liquidity risk management for the safety and soundness of financial
The attached guidance clarifies the process that financial institutions should
follow to appropriately identify, measure, monitor and control funding and
liquidity risk, including effective corporate governance; provides an overview
of appropriate strategies, policies and procedures, which include risk limits
for managing and mitigating risks; and discusses the management of intra-day
liquidity and collateral.
A depository institution should actively monitor and control liquidity risk
exposures and funding needs within and across legal entities. Also, depository
institutions should take into account operational limitations to the
transferability of liquidity.
Institutions are expected to have in place appropriate measurement, monitoring
and reporting systems commensurate with the risk profile and business activities
of the institution. These systems should include provisions for stress testing
an institution's liquidity position under various adverse scenarios.
The guidance emphasizes the importance of certain tools for sound liquidity and
funding risk monitoring and management, including cash-flow projections,
diversified funding sources, a cushion of liquid unencumbered assets and a
well-developed, documented and Board-reviewed contingency funding plan.
Financial institutions should implement effective liquidity and funding
management internal controls and review procedures to monitor compliance with
supervisory directives, internal policies and management reporting.
The guidance is intended to supplement existing guidance (see FIL-84-2008,
"Liquidity Risk Management") issued by the FDIC in 2008, which still
remains in effect.
FDIC-Supervised Banks (Commercial and Savings)
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
"Liquidity Risk Management"
Kyle Hadley, Chief, Exam Support at KHadley@fdic.gov or (202) 898-6532
FIL-13-2010 - PDF (PDF Help)
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Paper copies of FDIC financial institution letters may be obtained through the
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(1-877-275-3342 or 703-562-2200).