Introduction–LiquidityThismodulewillstartwithabasicdiscussionofliquidity.Wewilldiscusstheareasthatexaminersfocuson,aswellasareasboardmemberscanfocusonwhenmonitoringliquidity.Attheendofthemodule,youwillassignaratingforoursamplebank’sliquiditycomponentandcompareyouranswertotheexaminer’sassessment.Gotothe“Next”buttonbelowtobegintheinstructionalcontentforliquidity.InstructionalContent-LiquidityOverviewWhenexaminersevaluateliquidity,wearecommentingonyourbank’sabilitytogeneratefundsatareasonablecosttofundloangrowth,depositrunoff,etc.Clearly,everybankinthenationcangoon-lineandacquireasmanyinternet-baseddepositsasthebankiswillingtopayfor.Whileproblemsassociatedwiththistypeoffundingcanbemitigated,regulatorswillgenerallybeconcernedwithacommunitybankthatutilizessubstantialquantitiesofthesedepositsbecausetheyareextremelyvolatileandexpensive.Soifsimplyhavingaccesstofundingisnotindicativeofastrongliquidityposition,whatis?Whatshoulddirectorslookatwhenassessingtheirbank’sliquidity?Herearefiveareastoreviewtohelpunderstandyourbank’sliquidityposition.1.NetNon-CoreFundingDependenceRatio-Thisratiomeasuresthedegreetowhichthebankisfundinglonger-termassets(loans,securitiesthatmatureinmorethanoneyear,etc.)withnon-corefunding.Non-corefundingincludesfundingthatcanbeverysensitivetochangesininterestratessuchasbrokereddeposits,CDsgreaterthan$100,000,andborrowedmoney.Higherratiosreflectarelianceonfundingsourcesthatmaynotbeavailableintimesoffinancialstressoradversechangesinmarketconditions.2.Theavailabilityofliquidassetsreadilyconvertibletocashwithoutundueloss-ConsiderFederalfundssold,availableforsalesecurities,loansforsale,etc.3.Coredeposit/assetgrowth-Arecoredepositscapableoffundinganticipatedassetgrowth?4.Diversificationoffundingsources-Abankwithstrongliquidityhasastrongcoredepositbase,establishedborrowingslines,andproceduresinplaceforacquiringinternet-basedorotherformsofemergencyborrowing.5.ExternalForces-Economicconditions,competition,marketingeffor