Page 6 The Banker’s Advocate
tingency funding sources
State Bank Department
and management’s plan-
ning ability.
Liquidity
 A failure to monitor
risk-based capital at
planning
smaller banks.
still lacking
Risk-based capital ratios
are important, Clair re-
minded attendees, because
Managing position is key,
they are a determinant of a
FDIC analyst tells bankers
bank’s Prompt Corrective
Action category.
By Richard S. Plotkin
“Banks need to be cog-
Editor
nizant of what those ratios
Some financial institu-
are and what the implica-
tions are falling short in
tions of changes to your
the areas of liquidity
PCA category will mean,”
analysis and contingency
Clair said.
planning six months after
A bank falling below the
the issuance of expanded
“Well Capitalized” cate-
guidance on liquidity risk
gory is subject to restric-
management, according
tions on the use of bro-
to a senior capital markets
kered deposits and rates it
specialist for the Federal
can pay on deposits.
Deposit Insurance Cor-
MAKING A POINT: Suzanne Clair, senior capital mar-
Other liquidity risks for
poration.
kets specialist for the FDIC, discusses regulatory expecta-
community banks listed by
Suzanne Clair, who
tions at a Liquidity Conference in Little Rock February 24.
Clair, in addition to the
spent 17 years as an ex-
possibility of a PCA
aminer for the FDIC in
cussed in Financial Insti-
think we gradually, over downgrade, include:
the Pittsburgh area before
tution Letter (FIL) 84-
my career, have moved  Reduced borrowing
moving two years ago to
2008, issued by the FDIC
away from this.” capacity or more restric-
the agency’s Capital Mar-
on August 26, 2008.
The modern perspec- tive borrowing terms
kets group in Washing-
Among the expectations
tive, Clair said, is that the (“collateral haircut”) for a
ton, D.C., was one of
set forth in the guidance,
management of liquidity is bank whose condition is
several presenters at a
which was distributed to
at least as important as the weakening.
Liquidity Conference
FDIC-supervised institu-
liquidity position.  Excessive off-balance
sponsored by the Bank
tions: Institutions using
Clair reported that ex- sheet commitments.
Department.
liability-based or off-
aminers also have ob-
 Reduced mortgage
About 150 bankers and
balance sheet funding
served:
prepayments.
federal and state regula-
strategies, or that have  A need for better co-
tors attended the confer-
ordination of strategic
 A decrease in cash
other complex liquidity
ence on February 24 in
planning, tactical execu-
flows in a bank with a
risk exposures, should
Little Rock.
tion and liquidity manage-
large volume of non-
measure liquidity risk us-
Clair said examiners
ment at some institutions.
performing loans.
ing pro forma cash flows/
have noted a lack of cash
scenario analysis, and
 Negative publicity and
 An overdependence
flow and liquidity gap
should have contingency on outdated static liquidity
rumors in a bank’s market
analysis at some institu-
funding plans. ratios.
area.
tions, and a need for en-
“In past regulatory The traditional ratios
Additional guidance on
hanced contingency plan-
oversight, examiners fo- used to measure liquidity
liquidity risk management
ning.
cused on the balance sheet risk have limitations, Clair
is expected to be issued
All of these are critical
position – your ratios – said. The ratios, she ex-
soon by the interagency
components of an effec-
and didn’t look as much at plained, are not forward
group through the Federal
tive liquidity risk manage-
the dynamic management looking and do not factor
Financial Institutions Ex-
ment program, as dis-
of liquidity,” Clair said. “I in such variables as con-
amination Council, Clair
said.
March 31, 2009
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10