By Donya Parrish, MCU VP- Risk Management
Depending on your generation, that may be a term you are not familiar with or using in casual conversation; I know it is not one you’ll hear me use with any regularity. “Taking an L” is a slang term (often used by younger adults) that means taking a loss. With all the stress on liquidity right now, that is not the goal, but definitely a concern for credit unions across the state.
There are a couple resources that might be worth a review by your board in this time of continued loan demand and lower deposit levels. NCUA mentioned their concern with liquidity in their 2023 Supervisory Priorities letter. They noted that examiners, “will assess liquidity management by evaluating:
- The potential effects of changing interest rates on the market value of assets and borrowing capacity;
- Scenario analysis for liquidity risk modeling, including possible member share migrations (for example, shifts from core deposits into more rate-sensitive accounts);
- Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds); and
- The appropriateness of contingency funding plans to address any plausible unexpected liquidity shortfalls.
Resources and guidance on liquidity risk can be found in the NCUA’s Examiner’s Guide.
Wipfli also has an article that I found insightful and loaded with some valuable suggestions on managing liquidity. You can read Liquidity risk management for credit unions in today’s interest rate environment to see if there are steps your board or management can take to worry less about the liquidity challenge.
The end to those challenges does not appear to be in sight any time soon, so if nothing else, you have a new term to use someone asks you how it’s going at the credit union. You can simply say “we took an L” and look cool and hip while leaving them wondering exactly what that means!