NCUA issued an Advisory on Liquidity Risk Management

By Mark DeBree

On January 17, 2024, the NCUA issued an Advisory on Liquidity Risk Management that identified “growing liquidity stresses” within the credit union system. Specific concerns relate to credit unions with:

• Low (or declining) share growth
• High loan growth
• Declining level of available liquidity

To ensure that credit unions remain safe through these challenging times, the NCUA laid out key focus areas for credit unions. These include:

• Managing and forecasting cash flows
• Managing asset composition
• Managing liability composition
• Governance and monitoring liquidity
• Diversified liquidity sources

As 2024 unfolds, interest rates remain high, inflation moderating but still elevated, and the economy continues to grow. We anticipate liquidity remaining a challenge, at least through the first half of 2024. This means credit unions will need to monitor and manage their liquidity positions diligently.

Asset Management Solutions

Catalyst's asset management team supports credit unions in the strategic management of assets and liabilities. We help credit unions evaluate loan and share pricing, recommend hedging strategies, structure investment portfolios, and develop cash flow forecasting and liquidity strategies.

Catalyst can help credit unions align with the NCUA Advisory:

1. Managing and forecasting cash flows
2. Managing asset composition
3. Managing liability composition
4. Governance and monitoring of liquidity
5. Diversifying liquidity sources

Liquidity

Liquidity solutions include everything from lines of credit and term loans to selling loan participations. Catalyst’s Loan Participation Exchange (LPX) is an excellent solution for credit unions to market loan participations to a nationwide audience of potential buyers. Our team supports the entire process from start to finish. When looking to diversify your liquidity sources or to manage loan growth and asset compositions, selling loans through LPX will help you achieve your goals.

Catalyst Liquidity Solutions helps with:

1. Managing asset composition
2. Diversifying liquidity sources

Risk Reporting

Risk reporting solutions offer industry-leading liquidity forecasting and stress testing that capture primary and secondary liquidity sources and challenges using a range of stress scenarios. This helps credit unions adequately prepare and manage their liquidity positions through uncertain times and unforeseen events.

Catalyst Risk Reporting Solutions help with:

1. Managing and forecasting cash flows

Did you know Catalyst provides risk reporting to more than 15% of credit unions nationwide?

Investment Management

Investment management solutions help credit unions buy and sell securities and issue or purchase non-member (brokered) deposits. On the issuance side, these services cater to credit unions nationwide to issue brokered deposits through custodial channels and the DTC markets. The most valuable services help credit unions identify and purchase securities to support their investment strategy and create investment strategies that support the liquidity and cash flow needs of their loan portfolio and deposit base.

Catalyst Investment Management Solutions help with:

1. Managing and forecasting cash flows
2. Managing asset composition
3. Managing liability composition
4. Governance and monitoring of liquidity
5. Diversified liquidity sources

If your credit union is looking for additional guidance on liquidity management or validation of the soundness of pricing and operations, we have the tools and people in place to help. View our solutions and request a consultation here.