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Federal Reserve Supervision Outreach Resources for Bankers
Carl White

Managing Liquidity Risk and the Importance of Bank Contingency Funding Plans

U.S. banking supervisors are asking the nation’s bankers to evaluate the liquidity risk inherent in their banks’ current operations and to have contingency funding plans in place and ready to execute in the event of liquidity shortfalls.1 That guidance is spelled out in an updated interagency policy statement issued in July.

9/28/2023 Read more about Managing Liquidity Risk and the Importance of Bank Contingency Funding Plans

A variety of factors—rising interest rates, persistent inflation, concerns about a potential recession and pandemic-related changes in where people work—have prompted concerns about the health of commercial real estate (CRE) properties and the bank loans that support them. Supervisors and economists at the Federal Reserve actively monitor CRE market conditions and the CRE loan portfolios of the banks it supervises.

On March 12, the Federal Reserve launched the Bank Term Funding Program (BTFP), a lending program for eligible depository institutions—banks, savings banks and credit unions—experiencing liquidity issues. The goals of the BTFP are to bolster institutions’ capacity to safeguard deposits and ensure the ongoing provision of credit to communities and the broader economy.

Rising interest rates have prompted both challenges and opportunities for banks over the past year. Bank supervisors are, understandably, urging bankers to pay close attention to a myriad of ways changing interest rates can affect earnings and capital, or what’s termed interest rate risk.

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Take Five is a popular video series featuring St. Louis Fed senior business economist  Kathleen Navin. In each video, Navin provides a quick, concise synopsis of the most recent meeting of the Federal Open Market Committee (FOMC).