Depository institutions are urged to regularly evaluate and update their contingency funding plans in a guidance addendum issued jointly Friday by the federal bank, savings association and credit union regulators.
The agencies view that having access to a range of reliable contingency funding sources “as a key component of safety and soundness,” they said in the addendum, which updates the regualtors’ 2010 guidance on liquidity risk and contingency planning.
“Depository institutions should maintain actionable contingency funding plans that consider a range of possible stress scenarios,” the Federal Reserve, Federal Deposit Insurance Corp. (FDIC), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC) said in the addendum. “The events of the first half of 2023 have further underscored the importance of liquidity risk management and contingency funding planning. As seen in these events, the level and speed of deposit outflows at a few firms was 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 over time, and sometimes without warning.”
The agencies are encouraging depository institutions to incorporate the discount window as part of their contingency funding plans. “Consistent with other contingency funding sources, the guidance reinforces the supervisory expectation that if the discount window is part of a depository institution’s contingency funding plans, the depository institution should establish and maintain operational readiness to use the discount window, which includes conducting periodic transactions,” they said in a statement. They noted that the discount window can readily provide funding for depository institutions, and the Central Liquidity Facility (CLF) can do so for credit unions.
“The guidance applies to all depository institutions supervised by the agencies,” they said.
The FDIC, OCC, and NCUA also issued letters and a bulletin on Friday’s update.