Recent turmoil in the financial markets emphasizes the importance of effective liquidity risk management for the safety and soundness of financial institutions.
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-84-2008FIL-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
FIL-84-2008, "Liquidity Risk Management"
Kyle Hadley, Chief, Exam Support at KHadley@fdic.gov or (202) 898-6532
FIL-13-2010 - PDF (PDF Help)
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at
To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).