1. Bank Liquidity and Wholesale Funding Part I

2. 2  Historical Overview  Bank Funding and Liquidity Trends  Federal Home Loan Bank Advance Trends  Presentation Review This course will address bank liquidity and wholesale funding history and trends. Click the links below to launch each section of the course.

3. Bank Liquidity and Wholesale Funding I Historical Overview

4. 4 Changes in Funding Sources  Advent and growth of FHLB borrowings  Internet expansion  Innovations in deposit products – Indexed CD’s – CD’s with interest rate step-up options

5. 5 Asset Securitization When managed properly:  Can be a favorable funding mechanism When mismanaged:  Can cause banks to be listed as “problem institutions”  Can cause failures

6. 6 Balance Sheet Composition Changes  No longer able to rely solely on deposits  Must look at other funding sources

7. 7 Borrowing Alternatives  National CD market  Brokered deposits  Repurchase agreements

8. 8 Traditional Core Deposits  Demand Deposit Accounts (DDA’s)  NOW Accounts  Savings Accounts  Money Market Deposit Accounts (MMDA’s)  CD’s less than $100M

9. 9 Question… Can these still be considered “core” deposits? It depends…

10. 10 Examiner Responsibilities  Identify stable funding sources for bank  Not rely on historic definition of “core” deposits  Look at behavior and characteristics of each funding source  Remember that each bank’s liquidity position is unique  Look beyond UBPR ratios and peer analysis

11. 11 In the next section… Select the next section, Bank Funding and Liquidity Trends, to continue.