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Understanding Regulatory Expectations

April 28, 2023

This week, the Federal Reserve announced plans to propose stronger rules governing the consequences for failing to manage and oversee liquidity and capital requirements. These rule changes will affect the funding strategies of all midsize to large banks (over $100 billion). There is also special emphasis on banks with significant uninsured funding. Along with formal rule-making, we anticipate intense regulatory inquiries in this area and ongoing requests for information as part of the supervisory process. Regulators will be seeking a better understanding of funding structures, off-balance sheet commitments, liquidity contingency planning, stress testing, and interest rate risk management.

The failures of Silicon Valley Bank and Signature Bank point to the need for stronger governance, risk controls and measurements, stress testing, management reporting, and Board oversight.

Secura/Isaac Group’s team of former regulators and finance executives are available to conduct a gap analysis on funding strategies, help enhance funds management processes, and improve efficiencies in corporate governance relating to asset liability management, reporting processes, and liquidity management.

As part of our work, we will:
  • Evaluate liquidity levels, including testing through various conditions and stress events
  • Review policies and procedures relating to funds management
  • Assess stability of funding sources and funding trends
  • Consider reliance on large counterparties and funding concentrations
  • Review and assess both management and board level oversight of funding and related matters, through ALCO and Risk Committee and Board
  • Assess reporting structure and the timeliness and accuracy of information escalated for decision makers and the Board
  • Consideration of parent as source of strength
  • Assess liquidity ratio monitoring such as for LCR and NSFR
  • Consider interaction of business model with funding strategies and concentrations
  • Consider investment portfolio asset liquidity, including level of unrealized losses in investment portfolio
  • Assess coverage of funding related matters in risk appetite statement, risk framework and other key governance documents
  • Evaluate risk monitoring and management processes, including appropriate calibration of early warning indicators, key risk indicators, and triggers as well as escalation
  • Review of stress testing and scenarios in funds management and interest rate risks
  • Review of data management and reporting frameworks, including bank regulatory reports
  • Consider crisis management structure and risk management, including contingency funding and capital planning
  • Assess contingency funding plan
  • Communication strategies for crisis management
  • Consider staffing, skilled talent and resources