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Comptroller's Handbook Comptroller’s Handbook Safety and Soundness Capital Asset Sensitivity to Other Adequacy Quality Management Earnings Liquidity Market Risk Activities (C) (A) (M) (E) (L) (S) (O) Liquidity Version 1.0, June 2012 Version 1.1, August 16, 2021 () Office of the Comptroller of the Currency Version 1.1 Contents Introduction............................................................................................................................. 1 Background ................................................................................................................... 1 Definition ...................................................................................................................... 3 Importance of Liquidity Management .......................................................................... 3 Sources of Liquidity...................................................................................................... 4 Fundamentals .......................................................................................................................... 6 Contribution of Balance-Sheet Structure to Liquidity Risk.......................................... 7 Operating Liquidity....................................................................................................... 9 Asset-Based Liquidity Sources................................................................................... 10 Cash Flows............................................................................................................ 10 Pledging of Assets................................................................................................. 10 Liquidation of Assets ............................................................................................ 11 Securitization of Assets......................................................................................... 11 Liability-Based Liquidity Sources .............................................................................. 12 Retail Deposits...................................................................................................... 12 Borrowed Funds.................................................................................................... 12 Deposit Listing Services ....................................................................................... 13 Brokered Deposits................................................................................................. 13 Funding From the Financial Markets.................................................................... 14 Risks Associated With Liquidity ............................................................................... 15 Credit Risk ............................................................................................................ 15 Interest Rate Risk.................................................................................................. 16 Price Risk.............................................................................................................. 16 Operational Risk ................................................................................................... 17 Compliance Risk................................................................................................... 17 Strategic Risk........................................................................................................ 18 Reputation Risk..................................................................................................... 19 Risk Management ................................................................................................................. 20 Corporate Governance ................................................................................................ 20 Policies, Procedures, and Limits................................................................................. 21 Liquidity Risk Measurement, Monitoring, and Reporting Systems ........................... 24 Intraday Liquidity Management ................................................................................. 26 Funding Diversification .............................................................................................. 27 Cushion of Highly Liquid Assets................................................................................ 28 Contingency Funding Plans ........................................................................................ 29 Internal Controls ......................................................................................................... 33 Liquidity Coverage Ratio ............................................................................................ 33 High-Quality Liquid Assets .................................................................................. 34 HQLA Operational Requirements .................................................................. 36 HQLA Amount ............................................................................................... 36 Total Net Cash Outflows ...................................................................................... 38 Maturity Mismatches ...................................................................................... 39 Comptroller’s Handbook i Liquidity Version 1.1 Derivatives ...................................................................................................... 41 Operational Deposits....................................................................................... 41 LCR Management................................................................................................. 43 Policies and Procedures .................................................................................. 43 LCR Shortfall.................................................................................................. 44 Net Stable Funding Ratio............................................................................................ 44 Available Stable Funding ...................................................................................... 45 Required Stable Funding....................................................................................... 46 Encumbered Assets......................................................................................... 46 Derivatives ............................................................................................................ 46 NSFR Remediation ............................................................................................... 47 Examination Procedures ...................................................................................................... 48 Scope........................................................................................................................... 48 Quantity of Risk.......................................................................................................... 50 Quality of Risk Management...................................................................................... 54 Conclusions................................................................................................................. 61 Supplemental Examination Procedures.............................................................................. 63 Liquidity Coverage Ratio Examination Procedures ................................................... 63 Net Stable Funding Ratio Examination Procedures.................................................... 69 Appendixes............................................................................................................................. 72 Appendix A: Brokered Deposit Use and Restrictions (Law: 12 USC 1831f, Regulation: 12 CFR 337.6)................................................................................... 72 Rate Restrictions ......................................................................................................... 73 Appendix B: Example—Bank Projected Sources and Uses Statement...................... 74 Appendix C: Example—Bank Liquidity Gap Report................................................. 76 Appendix D: Examples of Liquidity Stress Events, Triggers, and Monitoring Items or Reports................................................................................. 78 Appendix E: Example—Bank Liquidity Contingency Funding Scenarios ................ 80 Appendix F: Example—Problem Bank—Balance Sheet Trend Report..................... 82 Appendix G: Example—Problem Bank—Summary of Available Liquidity Report ................................................................................... 83 Appendix H: Example—Problem Bank—Cash Flow Trend Report.......................... 85 Appendix I: Abbreviations.......................................................................................... 87 References.............................................................................................................................. 88 Table of Updates Since Publication..................................................................................... 90 Comptroller’s Handbook ii Liquidity Version 1.1 Introduction The Office of the Comptroller of the Currency’s (OCC) Comptroller’s Handbook booklet, “Liquidity,” is prepared for use by OCC examiners in connection with their examination and supervision of national banks, federal savings associations, and federal branches and agencies of foreign banking organizations (collectively, banks). Each bank is different and may present specific issues.
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