Recognizing the warning signs for liquidity risk

Description

Abstract: According to regulatory reports, liquidity risk has been increasing in recent years for “smaller” banks (those with assets under $10 billion). Reasons for this trend include loan growth accompanied by shrinking liquid asset holdings and increasing reliance on noncore and wholesale sources. This article discusses elements of sound liquidity risk management, including ensuring effective board and management oversight, adopting appropriate strategies, policies, procedures and limits to manage and mitigate liquidity risk, and implementing appropriate liquidity risk measurement and monitoring systems.