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Six Questions CFOs Are Asking About Liquidity

December 8, 2016

Consumer confidence hit a nine-year high in November as consumers’ views on both economic conditions and the labor market improved (Source: Wall Street Journal). Many credit unions have enjoyed increasing loan-to-assets, as have their competitors. Even if interest rates don’t increase, many decision-makers with high loan-to-assets are grappling with questions such as:

  1. Do we have sufficient and cost-effective liquidity options to continue to handle robust loan demand?
  2. How tight is liquidity for our geographic and digital competitors?
  3. If our competitors’ liquidity is tightening, how can that impact our ability to attract cost-effective funds? How can it impact our interest rate risk?
  4. If we use CD promotions to meet liquidity needs, how much cannibalization are we willing to accept?
  5. Now that liquidity is tightening, how comfortable are we with our intended deposit strategy if rates were to rise?
  6. What do we need to do now to dust off the cobwebs and get great at attracting sufficient, cost-effective deposits?

It is not too soon to begin strategizing about this. Make sure to test various options and understand the interest rate risk impact as well as the marginal cost of funds. Keep in mind, your liquidity planning can be disrupted by desperate competitors.

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