Banking agencies stress need for liquidity risk management

Federal banking agencies today released updated guidance on liquidity risks and contingency planning, saying that the bank failures of the first half of the year underscore the importance of both. In the update, the FDIC, Federal Reserve, OCC and National Credit Union Administration noted that the unprecedented level and speed of deposit outflows “at a few firms” led to their collapse. “These events are a reminder to depository institutions that depositor behavior and broader market conditions may evolve over time, and sometimes without warning,” the agencies said.

The updated guidance encourages depository institutions to incorporate the discount window as part of their contingency funding plans, according to the agencies. The guidance also states that the supervisory expectation is that institutions should establish and maintain operational readiness to use the discount window—which includes conducting periodic transactions—if the window is part of their plans.