How to Manage Liquidity Risk in Today's Banking Environment

Managing liquidity risk has become very challenging as balance sheets have grown in complexity and dependence upon the capital markets for funding continues to rise. What were once considered contingency sources of liquidity—FHLB advances, repurchase agreements, brokered deposits and national CD listing services—are now part of the mainstream.

Out of necessity, these sources have become integral parts of the liquidity management process used by many financial institutions today.

Examiners understand the market forces that have led bankers to seek alternative funding sources and acknowledge their contribution to an effective liquidity management process (and profitability).

But this increased dependence also introduces additional issues and risks that institutions must understand and actively manage.

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