CRED 9
Liquidity
CRED 9.1
Application, purpose and interpretation
- 01/12/2004
CRED 9.1.1
See Notes
This
chapter applies to all credit
unions.
- 01/12/2004
CRED 9.1.2
See Notes
This chapter amplifies Principle 4 under which a credit union must maintain adequate financial
resources and the threshold
condition for permission that
a credit union's resources
must be adequate in relation to the regulated
activities that it carries on.
- 01/12/2004
CRED 9.1.3
See Notes
A central feature of credit union business is maturity transformation.
That is taking short term deposits (in
the form of share accounts) from members and making comparatively long-term
loans. It is important, in order to maintain confidence and protect members,
that a credit union
has adequate liquid assets (liquidity) to enable it to fulfil members' withdrawal
requests within expected timeframes.
- 01/12/2004
CRED 9.1.4
See Notes
The liquid assets held by a credit union should be
sufficient to meet its day-to-day business needs and to provide an appropriate
cushion in the event of pressure arising from unexpected events.
- 01/12/2004
CRED 9.1.5
See Notes
"Unattached shareholding"
means any shares in
the credit union that
are treated as freely withdrawable. This includes shares held by members in
a class of share account, intended for use as a current account, or otherwise
in connection with ancillary services (as defined in section 9 of the Credit
Unions Act 1979), even if (through the existence of a related loan) the free
withdrawability of the shares may be terminated by the committee at any time
in accordance with section 7 of the Credit Unions Act 1979.
- 01/01/2006
CRED 9.1.6
See Notes
- (1) Under section 7 of the Credit Unions Act 1979, if a withdrawal of shares would reduce the member's savings with the credit union to less than his total liability (including contingent liability) to the credit union whether as borrower, guarantor or otherwise then:
- (a) if there is a loan to the member which is treated as under section 11A of the Credit Unions Act 1979, the withdrawal is not permitted; and
- (b) in any other case, the withdrawal is permitted only at the discretion of the committee of management of the credit union.
- (2)
- (a) The most reliable interpretation of section 7 is that the committee may exercise this discretion on a case-by-case basis, but may not treat all such shares as freely withdrawable. This does not mean that every individual case has to be put before the committee. A case can be decided by an official of the credit union, applying a comprehensive policy laid down by the committee. This policy should be fully documented and set out all the factors that might lead to permitting the withdrawal. (Permitting the withdrawal should be the exception, not the norm.) If a decision is not clearly dictated by the committee's policy, then it should be referred to the committee itself.
- (b) The policy may extend to designating as freely withdrawable for the time being the shares in a class of share account, intended for use as a current account, or otherwise in connection with ancillary services (as defined in section 9 of the Credit Unions Act 1979). Where such shares are subject to the committee's discretion in section 7 (through the existence of a related loan) the credit union should not purport to give a contractual commitment to the free withdrawability of the shares, because that section means that the committee is capable of terminating the designation at any time.
- 01/01/2006
CRED 9.1.7
See Notes
'Total relevant liabilities' means the sum of:
- (1) unattached shareholdings in the credit union, and deposits by persons too young to be members of the credit union; and
- (2) liabilities (other than liabilities for shares) with an original or remaining maturity of less than three months (including overdrafts and instalments of loans).
- 01/12/2004
CRED 9.2
General requirements
- 01/12/2004
CRED 9.2.1
See Notes
A credit
union must hold liquid assets of an amount and composition that
is prudent and appropriate to the scale and nature of its business, having
regard to material risks, including the risk of a sudden adverse cash flow,
with a view to enabling it to meet its objective.
- 01/12/2004
CRED 9.2.2
See Notes
A credit
union must establish, maintain and implement an up-to-date liquidity
management policy statement approved by the committee of management and designed
to ensure its compliance with CRED
9.2.1 R.
- 01/12/2004
CRED 9.2.3
See Notes
A version
2 credit union must send to the FSA a copy of its liquidity management policy
statement as soon as is reasonably practicable after approval by the committee
of management.
- 01/12/2004
CRED 9.2.4
See Notes
The responsibility for ensuring that
a credit union can
meet its obligations as they fall due rests with the credit union's management.
- 01/12/2004
CRED 9.2.5
See Notes
A credit
union should be able to satisfy the FSA on a continuing basis that it has a prudent
liquidity management policy and adequate management systems in place to ensure
that the policy is adhered to.
- 01/12/2004
CRED 9.2.6
See Notes
The liquidity management policy statement
of a credit union should
set out the credit union's objectives
for liquidity, the limits within which liquidity should be maintained, and
the types of liquid assets which the credit
union should hold.
- 01/12/2004
CRED 9.2.7
See Notes
A credit
union's committee of management should review and approve its
liquidity management policy statement at least once a year, and more frequently
if necessary, especially in light of significant changes in business.
- 01/12/2004
CRED 9.2.8
See Notes
Where a version 2 credit union has borrowed wholesale
funds, the maturity of such funds and the risk of their not being able to
be refinanced should be taken into account in the formulation of the credit union's liquidity
management policy statement.
- 01/12/2004
CRED 9.2.9
See Notes
When
a credit union provides
ancillary services such as issuing and administering means of payment and
money transmission, it should take into account the potentially greater volatility
of its funds when deciding what amount and composition of liquid assets is
necessary to comply with CRED
9.2.1 R.
- 01/12/2004
CRED 9.3
Minimum liquidity requirements
- 01/12/2004
CRED 9.3.1
See Notes
The liquidity requirements set out in CRED 9.3.2 R; CRED 9.3.5 R are minimum requirements and are subject to the overarching requirement of CRED 9.2.1 R.
- 01/12/2004
CRED 9.3.2
See Notes
A credit
union must at all times hold liquid assets of a value equal
to at least 5% of its total relevant liabilities.
- 01/12/2004
CRED 9.3.3
See Notes
A version 1 credit union must further hold enough liquid assets to ensure that on no two consecutive quarter ends is the level of the credit union's liquid assets below 10% of its total relevant liabilities.
- 01/12/2004
CRED 9.3.7
See Notes
- (1) For the purposes of CRED 9.3.2 R - CRED 9.3.5 R, only those assets shall count as liquid which can be realised for cash at short notice, and within at most eight days.
- (2) Amounts loaned by one credit union to another must not be counted as liquid by the lender.
- 01/12/2004
CRED 9.3.8
See Notes
For the purposes of calculating the ratio of a credit union's liquid assets to its total relevant liabilities (in CRED 9.3.2 R CRED 9.3.5 R), assets shall be valued at the amount for which they could be realised within eight days.
- 01/12/2004
CRED 9.3.9
See Notes
- (1) For the purposes of calculating the ratio of a credit union's liquid assets to its total relevant liabilities (in CRED 9.3.2 R CRED 9.3.5 R), the securities referred to in CRED 7.2.1 R CRED 7.2.3 R should be valued on the basis that they could be realised at market value minus the following discounts (whether or not this is the case in fact):
- (a) maturity less than 1 year - zero;
- (b) maturity 1 to 5 years - 5%.
- (2) Compliance with CRED 9.3.9 E (1) may be relied on as tending to indicate compliance with CRED 9.3.8 R (the 8-day realisation-value rule).
- (2) Compliance with CRED 9.3.9 E (1) may be relied on as tending to indicate compliance with CRED 9.3.8 R (the 8-day realisation-value rule).
- 01/12/2004
CRED 9.3.10
See Notes
An asset maturing on a non-business day should be regarded
as maturing on the succeeding business
day.
- 01/12/2004
CRED 9.3.11
See Notes
For the purposes of clarity, funds serving
liquidity purposes may be invested in the manner set out in CRED
7.2.1 R provided
that the resulting assets satisfy the relevant requirements of this chapter.
- 01/12/2004