Tuesday, September 25, 2018

Greater Focus on Liquidity Risk Management

Washington State Division of Credit Unions earlier this month announced that its examiners will expand their liquidity analysis of credit unions.

The regulator noted that over the last eighteen months many Washington State chartered credit unions have shown a downward trend in cash and short-term investments.

This trend is not unique to Washington State credit unions. Nationally, the percent of credit union assets in cash and short-term investments has declined over recent years (see graph). As of June 2018, 12.19 percent of assets was in cash and short-term investments. This was below the 10-year average of 14.77 percent.

The Division of Credit Unions wrote that it will analyze credit unions with low liquidity levels to ensure that they have other sources of contingency liquidity to safely manage liquidity pressure.

The credit union regulator further commented that as a basic element of liquidity risk management, credit unions should keep an adequate cushion of highly liquid assets, including an adequate safeguard of cash and cash equivalents.

The Division's examiners will focus on liquidity policy and contingency funding plan, cash flow forecast, and liquidity testing and monitoring.

Read the Bulletin.

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