Liquidity Risk Management Policy Checklist

Tab 5 2010

Review Checklist
Part A – Liquidity Policy Legislative Requirements
Has the credit union established liquidity policies for the credit union? The Act S. 85 (1) / Yes / No / NA
Does the Liquidity Policy consist of policies, standards, and procedures that a reasonable person and prudent person would apply in order to ensure the financial soundness of the credit union, avoid undue risk of loss and obtain a reasonable return? The Act S. 85 (2) / Yes / No / NA
Does the board conduct a review of the policies at least once each year? The Act S. 85 (3) / Yes / No / NA
There are no orders made by the Corporation to amend policies that are considered to be inadequate or imprudent? The Act S. 85 (4)
If “No”, state the order: / Yes / No / NA
Is the order being carried out? / Yes / No / NA
There are no variances approved by the Corporation?
If “No”, describe the variance: / Yes / No / NA
Part B – Adequate Liquidity for a Class 1 Credit Union
Does the credit union maintain eligible assets for adequate liquidity whose value is at least 7% of the total deposits and borrowings of the credit union? O. Reg. 237/09, s. 20(2) If less than 7%, proceed to next question. / Yes / No / NA
If the credit union maintains a minimum of 5% or more does it meets all of the following criteria? O. Reg. 237/09, s. 20(3)
1.  It has a line of credit with a financial institution, Credit Union Central of Canada, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or La Caisse central Desjardins du Québec? / Yes / No / NA
2.  The line of credit is for an amount that is equal to or more than 2% of the credit union’s deposits. / Yes / No / NA
3.  The line of credit is revocable only after at least 30 days notice to the credit union. / Yes / No / NA
4.  The terms of the line of credit are set out in writing. / Yes / No / NA
Does the credit union include any other assets other than the following in its liquidity calculations? O. Reg. 237/09, s. 20(4) If “YES”, please describe the assets. / Yes / No / NA
1.  Cash
2.  A deposit that matures in 100 days or less that is with,
I.  A bank or authorized foreign bank within the meaning of Section 2 of the Bank Act (Canada)
II.  A corporation registered under the Loan and Trust Corporations Act
III.  A league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or La Caisse central Desjardins du Québec, or
IV.  Credit Union Central of Canada
3.  A treasury bill or other debt obligation issued by the Government of Canada or a province that matures in 100 days or less.
4.  A banker’s acceptance or discounted note issued by a bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada), a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or La Caisse central Desjardins du Québec, or Credit Union Central of Canada, if
I.  the acceptance matures in one year or less, and
II.  the acceptance or note has a rating of at least A (low), as classified by the Dominion Bond Rating Service or an equivalent rating as set out in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires.
5.  A debt obligation of a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or La Caisse central Desjardins du Québec, or Credit Union Central of Canada that matures in 100 days or less.
6.  A debt obligation of the Corporation.
Other Assets claimed for eligibility: / Yes / No / NA
NOTE: If an employer has deducted an amount from the pay of a member to be remitted to the credit union and the credit union has credited the amount to the member’s account but has not yet received the amount from the employer, an amount equal to that is in the process of being remitted to the credit union shall be deemed to be an eligible asset for adequate liquidity. O. Reg. 237/09, s. 20 (5)
No encumbered assets have been used to satisfy the requirements for adequate liquidity unless the asset was encumbered only by a security interest in favour of the Corporation? O. Reg. 237/09, S. 22 / Yes / No / NA
Part C – Adequate Liquidity for a Class 2 Credit Union
Has the credit union established prudent limits and forms of liquidity that are sufficient to meet its cash flow needs, including depositor withdrawals and all other obligations as they come due? O. Reg. 237/09, S. 21 (2) / Yes / No / NA
Does the Liquidity Policy establish what assets shall be used to satisfy the requirements for adequate liquidity? O. Reg. 237/09, S. 21 (3) / Yes / No / NA
Is liquidity within policy guidelines? / Yes / No / NA
The credit union is not using an asset that is not established in the Liquidity Policy to satisfy requirements for adequate liquidity?
If “No”, please explain: / Yes / No / NA
There are no encumbered assets that have been used to satisfy the requirements for adequate liquidity unless the asset was encumbered only by a security interest in favour of the Corporation? O. Reg. 237/09, S. 22 / Yes / No / NA
Part D – Liquidity Risk Management Policy General
Does the policy address the following?
Measuring, monitoring and reporting on liquidity risk position exposure (including concentration of large deposits, borrowing for liquidity purposes) / Yes / No / NA
Minimum operating liquidity targets / Yes / No / NA
Limits to deposit liability concentration risk with respect to:
·  An individual person and connected persons
·  Brokered deposits
·  Currency of deposits / Yes / No / NA
Delegation of authority and proper segregation of duties for managing liquidity risk / Yes / No / NA
Does the staff that is responsible for Liquidity Management have the skills, expertise, and training needed to implement the risk management policies, procedures, and controls? / Yes / No / NA
If “No”, does the credit union outsource Liquidity Management functions to a third party expert? / Yes / No / NA
Delegation of authority for operational borrowing / Yes / No / NA
Sources and acceptable ranges of operational liquidity / Yes / No / NA
Quality of assets used for liquidity purposes / Yes / No / NA
Maximum limits on liquidity borrowings / Yes / No / NA
Maturity Matching and/or Hedging of Large Deposits / Yes / No / NA
Frequency, form, and content of board reporting including the following:
Appropriately identifies the liquidity position of the institution / Yes / No / NA
Meets the requirements of the credit union’s liquidity risk management policies, the Act, and the Regulations / Yes / No / NA
Provides the board with sufficient and accurate information to determine that the institution is adhering to its liquidity risk management policies including information on:
·  An operational funding deficit as a percentage of eligible assets and total deposits / Yes / No / NA
·  The market conditions surrounding the eligible assets and total deposits / Yes / No / NA
·  Concentration of large deposits of single and/or connected depositors and brokered deposits as a percentage of total deposits / Yes / No / NA
·  The level of any borrowings relative to available borrowing levels / Yes / No / NA
·  The amount and composition of any encumbered asset / Yes / No / NA
Corrective action to be taken should liquidity levels drop below the required minimum levels / Yes / NO / NA
Involvement in any securitization programs, if applicable / Yes / No / NA
If applicable, the securitization program should outline an approved list of counter parties / Yes / No / NA
Part E – Liquidity Risk Management Policy General Guidelines – Class 2 Credit Unions
Does the policy require assets held for liquidity should consist of cash and high quality securities for which there is a broad and active secondary market where these assets can be quickly liquidated? / Yes / No / NA
Does the policy address holding assets that may incur a substantial discount if quickly redeemed? / Yes / No / NA
Is all cash held for liquidity in the possession of, owned by and under the direct control of the credit union? / Yes / No / NA
Does the policy consider the existence of impediments what would prevent a quick sale to meet unanticipated net cash outflow requirements? / Yes / No / NA
Does the policy address that the use of encumbered assets used to meet liquidity needs is prohibited? / Yes / No / NA
Does the policy define what the credit union considers to be a large deposit, one that if withdrawn, would have a significant impact on operational liquidity? / Yes / No / NA
Does the policy require adequate monitoring of liquidity at least monthly using projections for the next three month period? / Yes / No / NA
In order to meet funding requirements, has the credit union engaged in construction of a maturity ladder to calculate the cumulative excess or shortfall of funds at selected maturity dates? / Yes / No / NA
Does the credit union complete scenario testing on the behaviour of cash flows when evaluating whether the credit union is sufficiently liquid? / Yes / No / NA
Part F – Debt Obligations (The Act Sections 183 -188)
Does the credit union have a by-law authorizing the credit union to borrow money at such rates of interest and on such conditions as the board may determine?
The Act S. 183 (1) and S. 183 (2). / Yes / No / NA
Is the authorized amount of borrowing established in the by-laws equal to or less than the aggregate amount of 50% of the credit union’s regulatory capital and deposits? The Act S. 183 (3)
If “NO”, what is the aggregate authorized amount? / Yes / No / NA
The credit union has not created a security interest in property of the credit union? The Act S. 184 / Yes / No / NA
If “No”, does the security interest meet the circumstances prescribed in O. Reg. 237/09, S. 48? / Yes / No / NA
In the case of an acquisition, has the Corporation been notified that the credit union has acquired a security interest? The Act S. 185 / Yes / No / NA
The credit union has not borrowed money from another credit union? The Act S. 188 / Yes / No / NA
If “No” to above, was it approved by the Corporation? / Yes / No / NA
Part G – Managing Liquidity
Is borrowing used to meet short term liquidity needs or to fund long term growth? / Yes / No / NA
Is there a history of borrowing patterns? / Yes / No / NA
Is liquidity below 10%? If “YES”, please explain: / Yes / No / NA
If so, was historical borrowing patterns material? / Yes / No / NA
Is the credit union permitted to be involved in third party ATMs schemes? / Yes / No / NA
Has information regarding the line of credit (how much and where) been obtained? / Yes / No / NA
Are there borrowings when liquidity is high? / Yes / No / NA
Are there are any material discrepancies in levels reported to the Board and to DICO? / Yes / No / NA
Is liquidity unusually high? / Yes / No / NA
If so, what are the major contributory factors?
i.e. lack of loan demand, high rates on deposits
Is there a process to monitor large deposits? / Yes / No / NA
There are not significant un-extended lines- of- credit that, if used, would affect liquidity. / Yes / No / NA
Are all investments used for liquidity purposes easily redeemable? / Yes / No / NA
The credit union is not involved in third party ATMs? / Yes / No / NA
The credit union is not involved in any securitization programs? / Yes / No / NA
If “No”, what is the total amount of the securitization? / Yes / No / NA
Part H – Failure to Meet Requirements for Adequate Liquidity
Has the credit union met the requirements for adequate liquidity under section 84 of the Act? If “No”, complete next 3 questions. / Yes / No / NA
The credit union has not made any loan or any investment while it was not in compliance with the requirements for adequate liquidity? / Yes / No / NA
Has the credit union immediately submitted a report addressing the following matters to the Superintendent and to the Corporation?
I.  the circumstances that led to the failure to meet the requirements for adequate liquidity
II.  the steps the credit union has taken to meet the requirements for adequate liquidity, and
III.  when the credit union will again meet the requirements for adequate liquidity
Date Report was Submitted: / Yes / No / NA
The credit union has not changed the terms and conditions of a loan or refinanced a loan while it has not met the requirements for adequate liquidity? / Yes / No / NA

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