Alternative Back-up Sources of Funding
by Tanya DeVlieger, Financial Strategist
Don’t let your credit union be a victim of poor liquidity management. Liquidity management is the process of monitoring the flow of funds and the liquidity of assets to meet demands for funds in the form of share withdrawals, loan demand, and the operating needs of your credit union.
Let’s break it down even further than that. Liquidity is the ability to convert assets easily and rapidly into cash. Alternatively, short-term funds (cash and cash equivalents) held to meet immediate cash demands, such as deposit withdrawals or loan demand. Additionally, liquidity risk is the funding risk that, due to a lack of sufficient stable sources of funds, a credit union will be unable to continue meeting member demands for share withdrawals and/or new loans.
A few indicators of tightening liquidity may include high loan to share ratio, declining investments and cash equivalents, as well as a decline in overnight deposits with an increase in loans. Credit union’s sources of liquidity are core deposits, borrowings, repurchase agreements, non-member deposits, asset sales (short-term investments, loan portfolios, etc), and loan participations.
NCUA guidance states “Credit Unions should educate themselves regarding alternative backup sources of funding to those that occur within the normal course of operations. All credit unions should establish at least one means for generating cash or funding liquidity needs outside of normal operations.” A line of credit with Southeast Corporate qualifies as this alternative source of funds.
Southeast Corporate has various means to aid in managing your credit union’s liquidity. First and foremost is establishing a line of credit with us. Additionally, we can serve as your primary borrowing facility, offering term borrowings, secured and unsecured, as well as overnight funding. We can also assist you in raising funds by issuing non-member deposits through SimpliCD. These are just a few of the ways we can help with your liquidity management.
Please feel free to contact your Southeast Corporate Financial Strategist at 800-342-0203, option 2 to discuss the above options. Thank you for allowing us the opportunity to serve you.
