Profitability across the financial industry has stabilized since the financial crisis, but net interest margins can still be low, and the opportunity to increase earnings by facilitating loan growth is often too strong to resist. Depositor behavior for traditionally inelastic retail deposits has forced management teams to seek alternatives to support asset growth, some more unstable than others. One way to determine an adequate liquidity buffer is by running cash flow analyses. The goal is for these analyses to reflect an institution and its funding structure. Additionally, liquidity forecasting incorporates forward looking assumptions and parameters to effectively build around actual contingent events, and plans to remedy such events.

Liquidity Policy Architecture establishes liquidity procedures and measurements. It states what will be monitored and with what frequency. For example, the cash management sheet will be monitored daily, while Total Loans/Total Assets will be monitored monthly on a low-medium-high risk scale. Additionally, alternative liquidity sources should be identified, such as permissible methods of asset liquidation, FHLB borrowings, and the Federal Reserve discount window.

A Contingency Funding Plan (CFP) describes a broad range of possible funding crisis scenarios that may arise. It explains the responses needed to handle each situation, establishing clear lines of responsibility. Depositories have multiple outlets to obtain liquidity in times of financial harmony. Under periods of stress, though, the tenor of that sentiment changes substantially. The CFP provides a review of the resources available to the institution, which assures short-term funding needs can be met. Clear delineation of contingency funding scenarios should be made, outlining implementation and escalation procedures. Best practice for CFPs includes identifying and regularly monitoring early warning indicators.