AuditOne Advisory: Liquidity Risk Management Analysis

AuditOne Advisory

From Bud Genovese, Chairman

This Advisory presents data that we have complied to help in your institution’s Liquidity Risk Management (LRM) process. AuditOne performs remote-based LRM audits every year at institutions in the Western US and around the nation. One of our ALM audit specialists, Kruskal Hewitt, has developed the following presentation of liquidity data from a variety of financial institutions. Mr. Hewitt has been a risk and portfolio manager at international and large regional banks. I hope you find this information useful, and please share with your colleagues having responsibilities related to Liquidity Risk Management and Liquidity Policy. Thank you, — Bud


AuditOne LLC is a leading provider of outsourced internal audit and related services for community banks, regional banks, credit unions and other financial institutions (FI). Please refer to our website for further information ( Liquidity risk management (LRM) is among AuditOne’s audit areas, part of our Asset/Liability Management (ALM) practice. US financial institutions (FI) are expected to have regular internal audits of their monitoring and control of LRM, which requires a variety of tools.

AuditOne has compiled (anonymously) data from 67 of our LRM clients on liquidity limits. These are institutions where we have collected data from the most recent AuditOne LRM audit, going no further back than 2016, covering 67 institutions. AuditOne believes this database is relevant to our clients because it covers a relatively narrow range of asset size, geography and business lines. We update this analysis annually.

Unlike for interest rate risk, regulators have not created rules or detailed guidance on how liquidity should be modeled, measured or limited. Nor are liquidity risks straightforward to compare from one FI to another, given that liquidity limits can generally be measured/defined in various, somewhat different ways.


Within our database of 67 FI clients, there was one that had only one liquidity policy limit measure, and another with 18. The average is eight and the median seven.

There is no correlation between balance sheet size and the number of policy measurements; the second smallest balance sheet ($70 million) has 14 policy measures and the largest ($11 billion) has only one limit.


There is a broad proliferation of liquidity metrics and limits. These are presented in detail in the following two sections. However, there are three groups of liquidity limits that are more common than it first appears, because they can show up with slightly different definitions.

  1. Limit on total liquidity: These show for 56 of 67 (84%) of institutions in our LRM database. These represent some form of liquid assets as a percentage of total assets or total deposits. The ratio goes by different names, including primary liquidity ratio, total liquidity ratio. Note that many clients have more than one limit in this category.
  2. Limit on brokered deposits: 44 of 67 (66%) of institutions. This is typically measured as brokered deposits (which in turn requires precise definition) as a percentage of total assets or total deposits.
  3. Loan to deposit ratio: 25 of 67 (37%) of institutions. This is expressed as a percentage of total deposits or deposits plus borrowings. In some cases, the denominator is limited to core deposits.

It appears that the common points of liquidity risk exposure across institutions generally get appropriate attention. But we do not suggest, nor does our database analysis imply, some “ideal set” of liquidity measures.


Brokered Deposit / Total Deposit: In the numerator, all brokered deposits (per regulatory definition) and all deposits > $250,000, unless the institution has specifically designated a core depositor.

FHLB Advances / Total Assets: In the numerator, all collateralized borrowings from the FHLB.

Liquid Assets / Total Assets: In the numerator, all assets that mature within one year plus Available for Sale securities.

Liquid Assets / Total Deposits: Ditto.

Net Loans & Leases / Total Deposits: In the numerator, total loan and lease assets net of ALLL loan loss reserving.

Net Non-Core Funding Dependence: This ratio is noncore liabilities less short-term investments divided by long term assets. Noncore liabilities are total time deposits > $250,000, plus other borrowed money, plus foreign office deposits, plus securities sold under agreements to repurchase, plus Federal Funds purchased, plus insured brokered deposits. Long term assets are net loans and leases, plus securities with a remaining maturity of one year or more, plus Other Real Estate Owned (OREO).

Wholesale Funding / Total Assets: The numerator is brokered deposits (including CDARS), plus listing service deposits, plus security repurchase agreements, plus net Fed Funds purchased.

Note that per our earlier discussion, exact definitions of many of these metrics can vary from FI to FI.


This analysis presents results across our entire database of 67 institutions, most of them in western states. The 67 have in total 106 different measures of liquidity. But of these 106, 65 are used by only one or two institutions; they represent (less popular) variations on other definitions used more broadly.

The tables below show data on individually-defined limits, some closely related to others. It was indicated earlier, for instance, that total liquidity could be expressed as a percentage of total deposits or total assets; both show below (the 2nd and 5th tables, respectively), so that we can present data on the corresponding limit levels. The tables are ordered according to frequency of occurrence of each individual limit.

We would be happy to recalculate any of the results below for subsets of institutions based on asset size, primary regulator, and/or a specific limit that is not listed below. Please contact David Kellerman (our ALM Practice Director) at 702-279-8130 or Jeremy Taylor (our CEO) at 949-981-0420.

Please note:

  • The difference between “less than” and “less than or equal to” (or “greater than” and “greater than or equal to”) is minimal (in ratio terms). In the following presentation we have made no distinction between the two. For ease of notation, only “less than” (<) and “greater than” (>) are used
  • “<%” implies a limit expressed as a maximum (i.e., the highest that ratio can go), and vice versa. In contrast, in the body of each table below, “Maximum” indicates the highest limit amount across the database and “Minimum” the lowest, independent of how the limit itself is expressed.

Net Non-Core Funding Dependence: <% *


Liquid Assets / Total Deposits >%


Brokered Deposit / Total Deposit: <%


FHLB Advances / Total Assets: <%


Liquid Assets / Total Assets: >%


Net Loans & Leases / Total Deposits: <%


Wholesale Funding / Total Assets: <%


* Interpretation: The Net Non-Core Funding Dependence can be no higher than 7% for the lowest FI in our database and no higher than 60% for the highest FI. The average and median are both a policy maximum of 25%.


Database mix by asset size (all dollar figures in millions):


Database mix by primary regulator (all dollar figures in millions):


AuditOne LLC – Company Overview

AuditOne LLC’s is a leading provider of risk management services to financial institutions in the Western US and nationally. Our sole focus enables us to deliver effective and efficient internal audit and credit review services. This exclusive focus translates into exceptional benefits to our clients, including regional and community banks, credit unions and other financial institutions. We have experience with all regulatory authorities and offer a full selection of audit services comprising Asset/Liability Management (ALM) and IRR Audits, ADA Website Compliance Reviews, IT/Information Security/Cybersecurity, Network Penetration Tests, Credit Review/ALLL, BSA/Compliance, ACH Rules Compliance, Operations, Trust Audits, SOX/FDICIA Testing, and many specialty areas within each of these.

Our deep expertise is your edge. For more information on this article, or to receive a proposal for an ALM/ IRR / Liquidity Audit, please contact Jeremy Taylor, CEO, AuditOne LLC, at Contact Us. In addition, contact Jeremy for information on how our other services can help reduce risk at your institution. Also, for more information about AuditOne LLC and all our audit services see