Liquidity Risk Management: A Survival Strategy for the "Liquidity is King" Mantra

Banks nationwide continue to witness ongoing pressure to document sustainable liquidity during this time of global financial stress. From regulators to investors, a key question is whether an institution has sufficient liquidity. Perhaps, the six most common words from regulators these days are: Where is your Contingency Funding Plan (CFP)? More than ever, regulators are stressing the importance of liquidity risk management.

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This Year’s Battle over Mark-to-Market Versus Mark-to-Model Accounting Was Worth the Fight

Western Independent Banker Magazine

Douglas Wilding authored an article that discusses this year’s arguments in Washington D.C. over making changes to the mark-to-market accounting rules, which were negatively impacting the nation’s banks.

The article concludes:
“FASB appeared to accept the argument that while financial statements must maintain a high level of transparency, they also must show that financial performance is being measured consistently and delivers a fully accurate picture of financial conditions.  Valuation methods such as mark-to-model are not asking regulators to “go easy” on banks, but rather report real economic value without penalizing long-term investors (banks) in this current illiquid market.”

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Somebody Tell Hank There is a Hole in the Bucket

(Uncertain and inconsistent accounting and regulatory rules for fixed income investments will wipe out benefit of fresh capital)

As the Treasury pours capital into the banking system, some interpretations of regulatory, accounting, and bond rating rules are draining it out at an even faster rate.

The issue centers around rules that don’t fit all financial instruments at all times. On the regulatory side, we are starting to see some discussion of these issues from the Office of the Comptroller and even in testimony before Congress by the American Bankers Association. On the accounting side, there is a movement towards a “principle” vs. a “rules” based accounting system. However, time is running out to fix these crucial problems...

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