Addendum to the Interagency Policy Statement on Funding and Liquidity Risk Management: Importance of Contingency Funding Plans

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Regulators are increasing their scrutiny of funding and liquidity risk management, but so are other key stakeholders, including boards of directors, investors, and customers. Treliant has the experience and practical knowledge to assist its clients when navigating this new environment.

Treliant’s Risk Management Solutions team is comprised of former C-suite industry practitioners who have led funding and liquidity functions within financial institutions of varying sizes and complexities. Our experts have developed, implemented, and – when needed – executed contingency funding plans in the most challenging markets in recent decades. We draw on our deep pool of resources to help meet a client’s specific funding and liquidity risk management requirements as business conditions and regulatory expectations evolve.


The Interagency Guidance (The Guidance) begins by stating “The events of the first half of 2023 highlighted the importance of liquidity risk management and contingency funding plans. As seen in these events, the level and speed of deposit outflows at a few firms were unprecedented and contributed to acute liquidity and funding strain at those institutions. These events are a reminder to depository institutions that depositor behavior and broader market conditions may evolve, and sometimes without warning.”

The Guidance then emphasized several points that all financial institutions should consider as they prepare for their regulators’ next visit. The first is that these institutions should be aware of the operational steps required to obtain funding from contingent funding sources. This includes potential counterparties, contact information, and availability of collateral. These steps were not properly followed and, in some cases, limited the ability of distressed institutions to access funds in a timely manner – with obvious consequences.

Another point was that all contingent funding sources be tested regularly to ensure the existing processes and processes to access this funding were effective and that the institution’s staff could function as envisioned. The Guidance specifically identified the potential operational challenges of moving and posting collateral as a critical component of the testing process. The testing should also include initiating or renewing the institution’s relationship with the appropriate Federal Reserve Bank and Federal Home Loan Bank.

Institutions were also encouraged to recognize that some contingent sources of liquidity, such as repo lines, could be unavailable. This unavailability could be due to a source’s unease about their own need to conserve liquidity or creditworthiness concerns about potential borrowers. Therefore, contingency funding plans should include scenarios that cover these possibilities.

What Does This Mean for Financial Institutions?

Financial institutions should regularly review and revise their contingency funding plans and should do so more frequently if the markets are volatile or a new strategy is being implemented. This review should include an analysis of less stable funding sources and whether new or larger contingent funding sources are required.

Regulators are going to increase the breadth and depth of their examinations of your liquidity risk management practices with a special focus on contingency funding plans. It is possible, and perhaps even likely, that the regulators will conduct off-cycle reviews to ensure that financial institutions, including non-bank firms like credit unions and any other depository entity, satisfy the latest standards for safety and soundness.

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