LRM Advisory: Q1 2018

AuditOne LLC Advisory

From Bud Genovese, Chairman

Kruskal Hewitt, a Senior Associate based in our New York City office, has written an article below that summarizes how financial institutions are monitoring and controlling their exposure to liquidity risk. Funds management is always a critical component of financial risk management but especially so in the current macroenvironment and in view of regulatory concerns over “surge deposit” risk.

Mr. Hewitt tracked this data from the numerous Liquidity Risk audits we perform each year. We’ve compiled (anonymously) into a very useful database the data gathered in those audits. Please feel free to forward this informative column to any appropriate people in your financial institution.  For the best viewing experience, please go to our website.  Thank you.  – Bud


AuditOne LLC is a leading provider of outsourced internal audits for community banks and other small/mid-sized financial institutions. Please refer to our website for further information about AuditOne. Among AuditOne’s practice areas is liquidity risk management (LRM). US financial institutions 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 76 of our LRM clients on liquidity limits. These are institutions where we have used data from the most recent AuditOne LRM audit, no further back than 2015. AuditOne believes this database is relevant to AuditOne clients because it covers a relatively narrow range of asset size, geography and business lines. AuditOne will update this analysis annually.


Regulators have not created rules or detailed guidance on how liquidity should be modeled, measured or limited. As a result, there is a broad proliferation of measurements (and limits), differing widely across institutions. There is no single measure that is used by more than two thirds of our clients and only seven that are used by more than a third. As an illustration of the diversity, we have clients that have only one liquidity measurement subject to a limit while there are some with more than 15.

However, these figures can be a bit misleading. For example, a metric targeting a particular aspect of liquidity risk may show up in a number of different forms and definitions. Another example, some banks monitor against a limit while others may monitor and report the same metric but without imposing a (maximum or minimum) limit. We believe that most of our clients are satisfactorily monitoring their liquidity position, and that the common points of liquidity risk exposure across institutions generally get appropriate attention.

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.


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

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

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

Net Loans & Leases / Total Deposits & Borrowings:

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 + other borrowed money + foreign office deposits + securities sold under agreements to repurchase + Federal Funds purchased + insured brokered deposits. Long term assets are net loans and leases + securities – debt securities with a remaining maturity of one year or less + other real estate owned (non-investment).

Total Liquidity/ Total Assets: The numerator is short term assets – short term liabilities + off-balance sheet liquid resources.

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


This is our first analysis and presentation of this data. It presents results across our entire database of 76 institutions. However, we would be happy to recalculate any of the results for subsets of institutions based on asset size, primary regulator, and/or a specific limit that is not listed below. Please contact either Jeremy Taylor or Kevin Watson at 562-802-3581.
Note that “<%” implies a limit expressed as a maximum (i.e., the highest that ratio can go), and vice versa. This is in contrast, in the tables below, with “Maximum” which indicates the highest limit amount across our database and “Minimum”, the lowest limit amount, whether the limit itself represents the highest or lowest the ratio in question is allowed to go.

Net Non-Core Funding Dependence: <%


Net Loans & Leases / Total Deposits & Borrowings: <%


Total Liquidity/ Total Assets: >%


Brokered Deposit / Total Deposit: <%


Liquid Assets / Total Assets: >%


FHLB Advances / Total Assets: <%


Wholesale Funding / Total Assets: <%



The following tables describe the 76 institutions in the database.  All dollar figures are in millions.

Database mix by asset size:


Database mix by primary regulator:


Kruskal has been a Senior Associate with AuditOne since 2014, specializing in ALM (asset/liability management) audit and consulting work. He has considerable experience in the treasury and trading areas, including derivatives, investments and foreign exchange, in addition to interest rate and liquidity risk. Prior to AuditOne, he was with a Japanese utility, managing market and credit risk. Before that his background included market risk management with a large US regional bank and with multinational banks in the US, Asia and Europe. Kruskal holds a BA in Mathematics and an MBA from Northeastern University. His certifications include PRM (Professional Risk Manager), FRM (Financial Risk Manager), and CALMS (Certified ALM Specialist).

AuditOne LLC – Company Overview

AuditOne LLC provides independent risk management services to financial institutions. Our sole focus is providing internal audit and credit review services to the financial institution industry. We have experience with all regulatory authorities and offer a full selection of audit services comprising Credit Review/ALLL, BSA/Compliance, IT/Information Security, ACH rules Compliance, Operations, Network Tests, Asset/Liability Management and various specialty areas. Our expertise is your edge. For more information on this article, please contact Jeremy Taylor, Co-CEO at: Contact Us or Kevin Watson, Co-CEO at: Contact Us and for information about all of our audit services see