A requirement of the “L” component of the CAMELS rating system is for financial institutions to have independent, third-party reviews of their liquidity risk management. An institution’s liquidity management process should ensure that daily funding needs are met and provide coverage for both expected and unexpected deviations from normal operations. Accordingly, an institution should have a comprehensive management process for identifying, measuring, monitoring, and controlling liquidity risk.

The Financial Management team at ProBank Austin has identified seven critical elements of sound liquidity risk management. Financial institutions should have a comprehensive management process for identifying, measuring, monitoring, and controlling liquidity risk.

The 7 Critical Elements of Sound Liquidity Risk Management includes:

  1. Effective Corporate Governance
  2. Appropriate Policies, Procedures, Strategies, and Limits
  3. Liquidity Risk Measurement, Monitoring, and Reporting
  4. Diverse Mix of Existing and Potential Funding Sources
  5. Adequate Levels of Highly-Liquid Marketable Securities
  6. Comprehensive Contingency Funding Plan (CFP)
  7. Internal Controls

To learn more, call 1.800.523.4778 to speak with a ProBank Austin representative.