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3rd Quarter 2023: Wake Up Call for Robust Liquidity Planning

NEWSLETTER| Tue Jul 18 2023

As central banks continue to struggle with taming the stubborn inflation, there are two plausible near term scenarios for banks, credit unions and other institutions holding interest bearing assets and liabilities:

As access to capital becomes scarce, careful liquidity planning is required to consider the above scenarios and their permutations. This article outlines key management actions to prevent a high severity liquidity event.

Developing early warning signals:

Measuring Funding Liquidity Risk:

Utilizing tools, e.g., core banking system, for tactical liquidity analysis to determine intraday and short term- liquidity, e.g., the cash-flow, cash and collateral management.

For medium and long term liquidity management, i.e., structural liquidity, the following are suggested considerations:

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The banks should also have in place an action plan for firm specific and market-related liquidity events. An institution's contingency plans should take into consideration the need to obtain replacement funding, and specify the possible alternative funding sources.