Western Independent Banker - January/February 2009 - (Page 12)

The next phase of the plan is to create a procedure for the Treasury to purchase certain identified loans and assets to shore up weak bank balance sheets. Overall, the plan is intended to avoid significant bank failures and encourage lending and restore liquidity. However, for the plan to work, each bank’s liquidity must be properly managed during these recessionary times. Liquidity Is a Top Priority In an economic recession, circumstances change very quickly. Banks must detect even slight movements in their liquidity in order to implement treatment actions. Relying upon traditional periodic bank operating and balance sheet ratio analysis is insufficient. This data focuses upon bank conditions but ignores changing market conditions. It is historically based, and trend oriented. It is compiled and analyzed much too slowly to move quickly. Often problems surfaced by balance sheet ratios are well beyond available opportunities to reduce exposure. The OCC Liquidity Handbook makes reference to five critical liquidity risk elements: (a) a well defi ned liquidity strategy; (b) a viable contingency funding plan; (c) tools and techniques to identify and measure liquidity risk; (d) strong internal controls; and (e) reliable and accurate management information systems and reporting processes. Because of the increased reliance upon high volumes of non-core deposits, community banks need to track their sources and uses of funding, (inflows and outflows) daily if possible. Next they need a funding concentration report that identifies what factors or decisions could cause a sudden withdrawal of funds. These might include average deposit balance volatility, rollover dates, and interest rates. Lastly, a current funds availability report is a necessary forward-looking analysis tool that is especially important for community banks that operate at high loan to deposit ratios. And, finally, the bank’s contingency funding plan should be updated and carefully documented. It is much more than merely making mention of the Federal Home Loan Bank resource, or a list of correspondent or other informal borrowing arrangements. It needs to be a dynamic plan that indicates on an “as if ” basis the actual potential for availability in the event of rapidly changing scenarios that might negatively impact the bank. Community banks should reassess their funding information systems and make liquidity management a key priority. Richard Sprayregen is partner with Squar, Milner, Peterson, Miranda & Williamson, LLP, in Newport Beach, Calif. He can be reached at (949) 222-2999 or rsprayregen@ squarmilner.com. Leasing Prowess you can bank on! ✓ Achieve Portfolio Diversiﬁcation ✓ Increase Interest and Fee Income ✓ Increase Your Commercial Loan Portfolio ✓ Strengthen Your Relationship with Your Current Commercial Customers ✓ Enjoy the Turnkey Beneﬁts of Our CashFlow Lease Program Contact: Mark Buchanan Tel: 214.778.1843 Email: mbuchanan@bancleasing.com Intelligent Nimble Straightforward 12 www.wib.org Western Independent Banker http://www.bancleasing.com http://www.wib.org

Table of Contents Feed for the Digital Edition of Western Independent Banker - January/February 2009

Western Independent Banker - January/February 2009 Contents A Message from the President & CEO Managin Liquidity and Funding During a Recession Staying Liquid in a Time of Regulatory Sea Change Managing Liquidity in a Volatile Rate Environment Regulatory Outlook for Brokered Deposits Deposit Growth and Branch Network Effectiveness Turbo Charging Account Acquisitions FDIC-Insured Sweep Accounts Creating a Contingency Funding Plan WIB Service Corporation Report WIB Calendar New Members Index of Advertisers advertiser.com

Western Independent Banker - January/February 2009

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