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Supervision News Flash

December 2019

Webinar Recap – Liquidity Risk and IT Vendor Management Highlighted

weighing the risk against your liquid assets

The Richmond Fed in October held the sixth in a series of webinars designed to raise awareness within the Fifth District of issues and trends examiners are seeing as we conduct our supervision activities. We chose the program topics “Liquidity and the Evolving Deposit Landscape” and “The Essentials of an Effective Vendor Management Program,” as they are two of the top five risks we believe community and regional banking organizations are facing. Senior Examiner and Risk Specialist Greg Dodt led the liquidity discussion, and Senior Manager Cara Mitchell led the vendor management presentation.

If you were not able to listen in live, we invite you to listen to the webinar to hear more about these issues as well as the sound practices we have observed at community and regional banks. You can find the audio for this and prior webinars in our presentation archive.

On the liquidity front, Dodt shared how loan growth at banks has been outpacing their ability to generate stable, core deposits. Competition from credit unions, large banks and internet firms has made core deposit growth tougher than in the past. Consequently, many smaller banks are resorting to deposit promotions to achieve their funding needs. Funds raised from deposit promotions, even while core by definition, may not be as stable as that classification suggests. Likewise, examiners have observed that deposits with pricing exceptions are increasing significantly. Dodt shared sound practices examiners have seen in banks using deposit promotions or pricing exceptions, and he elaborated on the importance of re-evaluating deposit assumptions given the shifting composition of deposits.

Next, Mitchell walked the audience through the five essential components of an effective vendor management program. She focused on the risk assessment and vendor due diligence aspects of these programs, as these are both areas where examiners periodically note issues in the effectiveness of these practices. The risk assessment phase is where you start in determining the need for a product or service and whether or not outsourcing is an option. Once you decide to outsource, you move into the due diligence phase. She shared a detailed set of steps banks can take to conduct their due diligence. Due diligence is a key step, as you may open yourself up to unforeseen risk if the vendors are not chosen and managed wisely.

Listen to the webinar for more details on how your firm can ensure you have sound risk management practices in these areas. As always, our goal is to share considerations with financial institutions early enough to allow you to look at your own practices. Let your Federal Reserve portfolio team, or central point of contact, know if you would like to discuss the contents of the webinar.  Likewise, let them know if you have suggestions for future webinar topics.

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