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All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Asset Management Group, Inc. Any material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Links to other sites should not be construed as endorsement of that site's advice and/or products. Although Asset Management Group, Inc. is a subsidiary of Country Club Bank, nothing presented here should be construed as either an offer to buy or sell securities, and does not represent a guarantee by the bank, implied or otherwise, of any financial asset.
Disclaimer

Disclaimer

All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Asset Management Group, Inc. Any material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Links to other sites should not be construed as endorsement of that site's advice and/or products. Although Asset Management Group, Inc. is a subsidiary of Country Club Bank, nothing presented here should be construed as either an offer to buy or sell securities, and does not represent a guarantee by the bank, implied or otherwise, of any financial asset.

Thursday, April 9, 2015 Exam Prep: Liquidity Stress Testing - How Much is Enough?
Banking regulators seem to be increasingly focused on liquidity, or more appropriately stated, they seem to be increasingly focused on stressed liquidity.  Stressed liquidity, of course, is when the balance sheet is stressed by an immediate decrease in deposits coupled with a reduction in the capacity to borrow.  The concept of stressed liquidity was extremely important during the early years of the credit crisis beginning in 2007 and continuing until banks either failed or worked-out their credit issues.  This was followed by a “lull” in regulatory scrutiny, but recent increases in the ratio of loans-to-deposits have brought renewed interest in the concept.
There are three “stress scenarios” that are “triggered” by the loss of deposits:
  • The first is a “Mild Stress Event” that merely reduces deposits by 5% over a period of a couple of weeks.
  • The second is a “Moderate Stress event” that reduces deposits by 10% and ability to borrow over a three month period.
  • The third is a “Severe Stress Event” that reduces deposits by 20% and the ability to borrow over a one-year time frame.
The “Severe Stress Event” is the most scrutinized.  At the end of the day (or the end of the exam) if the Cumulative Net Surplus in the 181-365 days period is NEGATIVE, or marginally positive, be prepared to produce your Contingency Funding Policy! Even if your numbers are solidly positive in the last time bucket, it is still imperative that this policy be updated, accurate, reasonable, comprehensive, and most importantly, an effective tool to provide the liquidity needed.

Note: All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Asset Management Group, Inc. Any material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Links to other sites should not be construed as endorsement of that site's advice and/or products. Although Asset Management Group, Inc. is a subsidiary of Country Club Bank, nothing presented here should be construed as either an offer to buy or sell securities, and does not represent a guarantee by the bank, implied or otherwise, of any financial asset.

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Disclaimer

All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Asset Management Group, Inc. Any material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Links to other sites should not be construed as endorsement of that site's advice and/or products. Although Asset Management Group, Inc. is a subsidiary of Country Club Bank, nothing presented here should be construed as either an offer to buy or sell securities, and does not represent a guarantee by the bank, implied or otherwise, of any financial asset.