Given the recent bank liquidity crisis event and developments over the past week, we, as like you, have been keeping tabs on the information unfolding. As we continue to keep an eye on the situation, we have highlighted five key pieces of information financial institution leaders should consider at this time.
- Be Communicative and Transparent with your customers, your employees, your investors, your regulators, and your Board. Be open to their asking questions and provide them with as much information as you can. Having a greater understanding by all parties on the Bank’s operations will help ease concerns related to the current situation.
- Be an Analyst. Look at your Bank as if you were an independent analyst and be prepared to answer the questions an analyst would ask, even if you’re not publicly traded. If not already, you’ll soon be subject to increased liquidity reporting requirements from your regulators (some on a daily basis!). You’ll be required to report specific data inclusive of depositors, uninsured deposits, deposit inflows and outflows (bifurcated by insured and uninsured as well as customer type); and report balance sheet data inclusive of available-for-sale and held-to-maturity investment security portfolio positions, detailing all unrealized losses on those positions, available liquidity, borrowing capacity and so on. Stress testing results under severe scenarios will be a point of focus, as well as the underlying assumptions used in those scenarios. Ensure that you are well versed in the underlying details of your models evidencing that you have a robust understanding of it and can accurately convey the information. Now is also a perfect time to consider revisiting your liquidity and ALCO policies and implementing stricter limits to reduce exposures.
- Be Prepared! Now more than ever is the time to leverage your existing professional service providers—attorneys, accountants, consultants—for opinions and advice on what “you should be doing.” We’re all great resources! Like you, we talk to our clients, peers, and channel partners daily. The diverse perspective of what you can gain by speaking to those who you engage with at various times throughout year will help to ensure your spending time and effort in the “right” places.
- Be on Top of the Hot Button Issues. These are the topics we talk about daily. Be prepared to discuss them in a meaningful and informed manner and consider how they directly impact your Bank. Some of these topics include the impact of rising interest rates on the Bank’s investment portfolio and earnings, levels of uninsured deposits and core deposits, any significant concentrations, and the overall impact that the implementation of the CECL standard will have on your Bank.
- Be Open to Considering New and Different Things. A new liquidity resource has been provided to you in the form of the Bank Term Funding Program. This may be an advantageous means to create liquidity given the collateral valuation is 100% of par value. As the old saying goes, “cash is king” and contrary to normal operating procedures, given the concerns present in the market, the Bank should consider increasing its cash on hand and available to them for immediate funding needs.
As additional information and insights unfold, we’ll continue to keep you informed. If you have questions regarding the above or the current bank liquidity event in general, please reach out to a member of the Financial Institutions Team.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.