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ALEXANDRIA, Va. – Credit unions can take a proactive approach by reviewing their liquidity policy and contingency plans to ensure that liquidity levels can be maintained at appropriate levels during times of economic stress, NCUA recently reminded. Depending on the size and complexity of the credit union, minimal standards may consist of amounts of cash and liquid investments and the loan-to-share ratio, NCUA said in its April 2006 newsletter. More complex operations should include limits for projected net cash flows, daily cash requirements, borrowings, and volatile sources of funds. NCUA also said a contingency funding plan is essential to ensure an uninterrupted flow of funds necessary for the daily operation of the credit union. A well-developed plan should have more than one tested, backup source of liquidity, which can include lines-of-credit with the credit union’s primary correspondent financial institution, longer-term borrowing sources such as Federal Home Loan Banks, and established borrowing repurchase agreements. The regulator also said if sales of assets such as long-term mortgage loans are to be relied upon as a source of liquidity, relationships should be established and tested. At large credit unions, the responsibility for daily monitoring and assessing liquidity should be assigned to a staff person, NCUA suggested. Liquidity position reports should be channeled through senior management, the asset-liability committee if appropriate, and finally, the board of directors. Over the last several quarters, credit union liquidity has tightened with loan growth generally exceeding share growth for all federally insured credit unions, NCUA said. This has led to a need for a sound liquidity policy that establishes a purpose and objective, minimum standards, monitoring responsibilities and reporting requirements. -

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