Analysis of liquidity

Liquidity must be evaluated on the basis of a bank's capacity to promptly meet the demand for payment of its obligations and to readily fulfill the reasonable credit needs emanating from the community or communities which it serves. Since banks of varying sizes operate under vastly different circumstances attendant to local, regional, national and international markets, analyses of liquidity will vary greatly from bank to bank depending upon the magnitude, nature and scope of a bank's operations. Thus, no single ratio or formula adequately captures and summarizes the many-faceted dimensions of liquidity for all sizes and categories of banks. Instead, liquidity must be judged with regard to a bank's ultimate ability to fund its obligations and commitments. In practice, then, the examiner must review the bank's current liquidity position and ask how liquidity would be affected by certain events in the bank's relevant economy or service area that might reasonably be expected to occur given the nature of the bank's operations and past experience. Thus. scenarios that include reductions in the level of deposits or shocks within the money markets should be considered and analyzed for their likely effect on an institution's liquidity position. Similarly, consideration should be given to the expected impact on funding requirements emanating from the bank's responsibility to provide for the credit needs arising from the market which it serves.

An individual bank's liquidity, therefore, is rated (1 through 5) with respect to (a) the volatility of deposits; (b) the degree of reliance on interest-sensitive funds; (c) availability of assets readily convertible into cash; (d) accessibility to money markets; (e) overall effectiveness of asset-liability management strategies and policies; (f) compliance with internal liquidity policies; and (g) the nature, volume and anticipated usage of credit commitments. It is recognized that these factors will have varying degrees of relevance for different banks depending on their size and particular financial structure, and that any evaluation of liquidity must necessarily address an individual bank's unique circumstances.

Дата добавления: 2015-07-20