Liquidity

cushion of liquid assets should be

concentrated in due from accounts, FFS, and high-quality assets (US Treasury securities or GSE bonds). Banks should be able ot monetize these liquid assets through the sale of the assets or the use of secured borrowings

borrowings include

debt instruments or loans the banks obtain from other entities: -fed funds purchased -federal reserve bank facilities -repurchase agreements -dollar repos -bank investment contracts -commercial paper -international funding sources

bank investment contract (BIC)

deposit contract between a bank and a customer that permits the customer to deposit funds over a period of time and obligates the bank to repay the amounts deposited plus interest at a guaranteed rate at the end of the contract term. Customers are often sponsors of employee benefit plans (pension or deferred compensation).

banks should have adequate internal controls to

ensure the integrity of the liquidity risk management process

asset sales can provide

fee income, relief from interest rate risk, and a funding source to the originating bank

what are core deposits?

generally stable, lower-cost funding sources that typically lag behind other funding sources in repricing during a period of rising interest rates-typically funds of local customers that also have a borrowing or other relationship with the institution

purpose of stress testing

helps a bank better understand the vulnerability of certain funding sources to various risks and helps identify when and how alternative sources should be accessed. Also helps identify methods for rapid and effective responses, guide crisis management planning, and determine how large of a liquidity buffer should be maintained. Should be used to identify and quantify potential risks and to analyze possible effects on the bank's cash flows, liquidity position, profitability and solvency.

what should not be considered stable or core deposits?

high-cost or non-relationship deposits, such as internet deposits or deposits obtained through high-rate promotions, brokered deposits due to wholesale characteristics

liquidity "4" rating

indicates deficient liquidity levels or inadequate funds management practices. May not have or be able to obtain a sufficient volume of funds on reasonable terms to meet liquidity needs.

liquidity "3" rating

indicates liquidity levels or funds management practices in need of improvement. May lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds management practices

liquidity "5" rating

indicates liquidity levels or funds management practices so critically deficient that the continued viability of the bank is threatened. Require immediate external financial assistance to meet maturing obligations or other liquidity needs.

liquidity "2" rating

indicates satisfactory liquidity levels and funds management practices. The bank has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs. Modest weaknesses may be evident in funds management practices.

liquidity "1" rating

indicates strong liquidity levels and well-developed funds management practices. The bank has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs

primary credit through Fed discount window

intended as a back-up of short-term funds for eligible institutions - with a composite of 1, 2, or 3 and at least adequately capitalized

other contingent liabilities

legal risks can have a significant financial impact on institutions that may affect liquidity positions

management and board responsibilities for cash flow assumptions

management should ensure all key assumptions are appropriate and well documented and the board should periodically review and formally approve the assumptions used

network and reciprocal deposits

meet the definition of brokered deposits

advances through Fed discount window for institutions with a composite 5 or undercapitalized

not more than 60 days in any 120 day period

institutions that identify asset sales or securitizations as contingency liquidity sources should

periodically test the operational procedures required to access these funding sources; however, testing does not guarantee the funding sources will be available or on satisfactory terms during stress events

how can the investment portfolio provide liquidity?

regular cash flows, maturing securities, the sale of securities for cash, or by pledging securities as collateral for borrowings, repurchase agreements, or other transactions.

reverse repurchase agreement

requires the buying institution to sell back the same asset purchased, is treated as a loan for Call Report purposes

what are federal funds

reserves held in an institution's Federal Reserve Bank account (or correspondent account for nonmember banks) that can be lent (sold) by institutions with excess reserves to other institutions with an account at a Fed bank (or correspondent bank). Institutions borrower (purchase) federal funds to meet their reserve requirements or other funding needs

independent review of liquidity

should access the extent to which liquidity risk management programs comply with supervisory guidance and industry practices

management actions for brokered deposits

should establish policies that describe permissable brokered and rate-sensitive funding types, amounts, and concentration limits. Should assess potential risks to earnings and capital associated with brokered and rate-sensitive deposits, carefully monitor how such funds are used, and understand the restrictions that may apply if the bank's PCA capital category falls below well capitalized

management actions if bank is using borrowed funds to meet contingent liquidity needs

should have a complete understanding of the associated risks, commensurate risk management practices, and a comprehensive contingency funding plan that specifically addresses funding plans if the bank's financial condition or the economy deteriorates

core vs noncore and stress testing

the bank should identify deposit accounts likely to be unstable in times of stress and appropriately reflect such deposits in its liquidity stress testing

liquidity position should be evaluated based on

the current level and prospective sources of liquidity compared to funding needs, as well as the adequacy of funds management practices relative to the bank's size, complexity, and risk profile

what is liquidity risk?

the possibility an institution will be unable to obtain funds, such as customer deposits or borrowed funds, at a reasonable price or within a necessary period to meet its financial obligations

transactions that do not qualify for sales treatment require

the selling institution to account for the transfer as a secured borrowing with a pledge of collateral

UBPR definition of core deposits

the sum of all transaction accounts, MMDAs, nontransaction other savings deposits, and time deposits of $250,000 and below, less fully insured brokered deposits of $250,000 and less

asset securitization

typically involves the transfer or sale of on-balance sheet assets to a third party that issues MBS or ABS. the instruments are then sold to investors. Investors are paid from cash flow from the transferred assets. Assets that are typically securitized include credit card receivables, automobile receivables, commercial and residential mortgage loans, commercial loans, home equity loans, and student loans

negotiable CDs

usually issued by large regional or money center banks in denominations of $1 million or more and may be issued at face value with a stated rate of interest or at a discount similar to US treasury bills. Have many features similar to borrowings and can be quite volatile

According to Part 303 what items need to be included in the request for an adequately capitalized bank to obtain or rollover brokered deposits? (8 items)

· Time period requested for · Statement on the use of BD in the overall funding and liquidity program of the bank · Volume, rates, and maturity held and anticipated, including internal limits on their solicitation · Cost comparison to other funding sources, and how they are used in the lending and investing activities · Procedures and practices for BD solicitation · Management systems overseeing the BDs · Recent financials · Reason it won't pose undue risk

What is not included as a deposit broker?

· Trust Department - A trust department of a bank, if the trust or other fiduciary relationship has not been established for the primary purpose of placing funds with banks · Trust Account - Trustee of a testamentary account or IRR trust · Pension Plan - A person acting as a plan administrator or an investment adviser with a pension plan or employee benefit plan · Profit Sharing - A trustee of custodian or a pension or profit-sharing plan

risks associated with using securitizations as a funding source

-If an early amortization clause is triggered, the issuing institution must begin paying principal to bondholders earlier than originally anticipated and will have to fund new receivables that would have otherwise been transferred to the trust -if the issuing institution has a large concentration of residual assets, the institution's overall cash flow might be dependent on the residual cash flows from the performance of the underlying assets -residual assets retained by the issuing institution are typically illiquid and are not acceptable collateral to pledge for borrowings -if the bank's reputation is damaged, issuers might not be able to economically securitize assets and generate cash from future sales of loans to the trust -the timeframe required to securitize loans held for sale may be considerable

an ALCO should

-actively monitor the institution's liquidity profile -have sufficient representation across major functions to influence the liquidity risk profile -ensure that liquidity reports include accurate, timely, and relevant information on risk exposures

liquidity rating evaluation factors:

-adequacy of liquidity sources compared to present and future needs and the ability of the institution to meet liquidity needs without adversely affecting its operations or condition -availability of assets readily convertible to cash without undue loss -access to money markets and other sources of funding -the level of diversification of funding sources, both on- and off-balance sheet -the degree of reliance on short-term volatile funding sources to fund longer-term assets -the trend and stability of deposits -the ability to securitize and sell certain pools of assets -the capability of management to properly identify, measure, monitor, and control the institution's liquidity position

a higher level of unencumbered liquid assets may be required if:

-bank customers have numerous alternative investment options -recent trends show a substantial reduction in large liability accounts -the bank has a material reliance on potentially volatile funding sources -the loan portfolio includes a high volume of non-marketable loans -the bank expects several customers to make material draws on unused lines of credit -deposits include substantial amounts of short-term municipal accounts -a concentration of credits was extended to an industry with existing or anticipated financial problems -a close relationship exists between individual demand accounts and principal employers in the trade area who have financial problems -a material amount of assets is pledged to support wholesale borrowings -the institution's access to capital markets is impaired

what is a sweep arrangement?

-brokerage customers are given the option to sweep uninvested cash into a bank deposit -provides the brokerage customer with additional yield and insurance coverage on swept funds

banks must receive determination from the FDIC before excluding certain funds from reporting of brokered deposits and the following criteria must be met:

-brokerage firm is affiliated with the bank -funds are not swept into time deposit accounts -amount of swept funds does not exceed 10% of the total amount of program assets handled by the brokerage firm on a monthly basis -the fees in the program are flat fees

examples of wholesale funding

-brokered deposits -internet deposits -deposits obtained through listing services -foreign deposits -public funds -federal funds purchased -FHLB advances -correspondent line of credit advances -other borrowings

funding sources

-cash and due from accounts -loan portfolio -asset sales/securitizations -investment portfolio -core deposits -wholesale funds -brokered/high-rate deposits -public funds -secured and preferred deposits -large depositors -negotiable CDs -borrowed funds -federal funds -fed discount window -repurchase agreements

factors to consider when assessing the stability of funding sources

-cost of the bank's funding sources compared to market costs and alternative funding sources -large deposit growth or large changes in deposit composition -stability of insured deposits and fully secured borrowings -current rate environment -current business cycle -contractual terms and conditions -relationship with the funding source

Cash flow stress test assumptions should incorporate:

-customer behaviors -prepayments on loans and MSB -seasonality -various time horizons -both contractual and non-contractual behavioral cash flows

the CFP should identify earling warning signs that are tailored to the bank's risk profile such as:

-decreased credit-line availability from correspondent banks -demands for collateral or higher collateral requirements from counter parties that provide credit to the bank -cancellation of loan commitments or the non-renewal of maturing loans from counter parties that provide credit to the bank -decreased availability of warehouse financing for mortgage banking operations -increased trading of the bank's debt -unwillingness of counter parties or brokers to participate in unsecured or long-term transactions

net loans and leases to assets

-depicts the % of a bank's total assets that are invested in loans -higher ratio typically indicates less balance sheet liquidity because more of the bank's assets consist of loans, which are less liquid than other types of assets

stress factors can be institution-specific or systemic and may involve one or more of the following:

-deterioration in asset quality -downgrades in credit ratings -downgrades in PCA capital category -deterioration in the liquidity management function -widening of credit default spreads -operating losses -rapid growth -inability to fund asset growth -inability to renew or replace maturing funding liabilities -price volatility or changes in the market value of various assets -negative press coverage -declining institution equity prices -deterioration in economic conditions or market perceptions -disruptions in the financial markets -general or sector-specific market disruptions

Factors that may indicate a need to maintain a higher liquid asset buffer include:

-easy customer access to alternative investments -recent trends showing substantial reductions in large liability accounts -significant volumes of volatile funding -high levels of assets with limited marketability -expectations of elevated draws on unused lines of credit or loan commitments -a concentration of credit to an industry with existing or anticipated financial problems -close ties between deposit accounts and employers experiencing financial problems -a significant volume of assets are pledged to wholesale borrowings -impaired access to funds from capital markets

elements of a sound liquidity risk management program

-effective management and board oversight -appropriate liquidity management policies, procedures, strategies, and risk limits -comprehensive liquidity risk measurement and monitoring systems -adequate levels of marketable assets -diverse mix of existing and potential funding sources -comprehensive contingency funding plans -appropriate plans for potential stress events -effective internal controls and independent audits

an effective system of internal controls should promote

-effective operations -reliable financial and regulatory reporting -compliance with relevant laws and bank policies

at a minimum, all CFPs should

-establish a liquidity event-management framework -establish a monitoring framework -identify potential contingent funding events -identify potential funding sources -require stress testing -require periodic testing of the CFP framework -delineate various stages an severity levels of each contingent liquidity event

to efficiently support daily operations and provide for contingent liquidity demands, banks must:

-establish an appropriate liquidity risk management program -ensure adequate resources are available to fund ongoing liquidity needs -establish a funding structure commensurate with risks -evaluate exposures to contingent liquidity events -ensure resources are available to meet contingent liquidity needs

liquidity risk management components

-for managing routine and stressed liquidity needs, institutions should establish diversified funding sources and maintain a cushion of high-quality liquid assets -management should use contingency funding plans that identify back-up funding sources and action steps to address more acute liquidity needs -management should stress test various scenarios to identify risks that should be mitigated and addressed in the contingency funding plans

institutions rely on cash and due from accounts to

-fund deposit account withdrawals -disburse loan proceeds -cover cash letters -fund bank operations -meet reserve requirements -provide compensating balances relating to correspondent bank accounts/services

net loans and leases to deposits

-indicates the % of loans and leases that is funded by deposits, vs other liabilities such as FHLB borrowings -ratio that exceeds 100% signifies the bank's reliance on funding sources other than deposits to satisfy loan demand

important factors to consider when assessing the diversification of funding sources:

-internal evaluations of risks associated with funding sources and whether or not the evaluations are reasonable and well documented -potential curtailment of funding or significantly higher funding costs during periods of stress -time required to access funding in stressed and normal periods -sources and uses of funds during significant growth periods -available alternatives to volatile funding sources

management should consider the following attributes when determinging what type of assets to hold for contingent liquidity purposes:

-level of credit and market risk -correlation during stress events -ease and certainty of valuation

typically, MIS and internal reports should provide information regarding:

-liquidity needs and the sources of funds available to meet those needs over various time horizons and scenarios -collateral positions, including pledged and unpledged assets and the availability of collateral -public funds and other material providers of funds -funding categories and concentrations -asset yields, liability costs, net interest margins, and variations from the prior month and budget -early warning indicators for contingency funding events -policy exceptions -interest rate projections and economic conditions in the bank's trade area -information concerning non-relationship or higher-cost funding programs -the stability of deposit customers and providers of wholesale funds -the level of highly liquid assets -stress test results

deposit restrictions if adequately capitalized under PCA

-may not accept, renew, or roll over any brokered deposit unless the institution has applied for and been granted a waiver from FDIC -may not offer deposit rates more than 75 basis points above average national rates for deposits of similar size and maturity -if a bank believes that the national rate does not correspond to the actual rates in the bank's particular market, the bank is permitted to request a determination from the RO that the bank is operating in a high-rate area

net non-core funding dependence

-non-core liabilities minus short-term investments divided by long term assets -negative ratio means that the bank does not rely upon non-core sources to fund long-term assets -low ratio indicates that the bank should be able to adapt to an unfavorable non-core funding situation with the liquidity available in short-term investments -high positive ratio means the bank may need to convert other assets in addition to short-term investments to satisfy the possible retirement of non-core liabilities that need to be paid

how can the quality of the loan portfolio negatively impact liquidity?

-operational cash flows may be affected by the level of non-accrual borrowers and late payments -an institution may find that delinquent loans do not qualify as collateral -prepayments and renewals can significantly affect contractual cash flows for many types of loans (residential mortgages, commercial, CRE)

as a part of liquidity management strategies, management should:

-perform periodic liquidity and profitability evaluations for existing activities and strategies -identify primary and contingent funding sources needed to meet daily operations, as well as seasonal and cyclical cash flow fluctuations -ensure liquidity management strategies are consistent with the board's expressed risk tolerance -evaluate liquidity and profitability risks associated with new business activities and strategies

risks associated with borrowed funds

-pledging assets to secure borrowing can negatively affect a bank's liquidity profile by reducing the amount of securities available for sale during periods of stress -unexpected changes in market conditions can make it difficult for the bank to secure funds and manage its funding maturity structure -it may be more difficult to borrow funds if the institution's condition or the general economy deteriorates -banks may incur relatively high costs to obtain funds and may lower credit quality standards in order to invest in higher-yielding loans and securities to cover the higher costs -preoccupation with obtaining funds at the lowest possible cost, without proper consideration given to diversification and maturity distribution, intensifies a bank's exposure to funding concentrations and interest rate fluctuations -some borrowings have embedded options that make their maturity or future interest rate uncertain

appropriate reasons for borrowing through Fed discount window

-preventing overnight overdrafts -loss of deposits or borrowed funds -unexpected loan demand -liquidity and cash flow needs -operational or computer problems -tightened federal funds market

dollar repurchase agreement (dollar repos/dollar rolls)

-provide banks with an alternative method of borrowing against securities owned -require the buyer to return substantially similar, versus identical, securities to the dealer -means of covering short positions in particular securities

liquidity event management processes-the CFP should

-provide for a dedicated crisis management team and administrative structure, including realistic action plans to execute the various elements of the plan for various levels of stress -establish clear lines of authority and reporting by defining responsibilities and decision-making authority -address the need for more frequent communication and reporting among team members, the board, and other parties -provide for more frequent and more detailed reporting as the stress situation intensifies -contain proactive plans (including public relations plans) to help preserve the bank's reputation in periods of financial stress

effective deposit management programs generally include:

-regular reports detailing existing deposit types and levels -projections for asset/deposit growth -associated cost and interest rate scenarios -clearly defined marketing strategies -procedures to compare results against projections -steps to revise the plans when needed -projections of deposit trends and monitoring of the potential volatility of the accounts

banks should periodically test and update the CFP to assess the plan's reliability under times of stress. Testing should ensure that:

-roles and responsibilities are up to date and appropriate -legal and operational documents are current and appropriate -cash and collateral can be moved where and when needed -contingent liquidity lines are available

Written policies are important for defining the scope of the liquidity risk management program and ensuring that:

-sufficient resources are devoted to liquidity management -liquidity risk management is incorporated into the institution's overall risk management process -management and the board share an understanding of strategic decisions regarding liquidity

Policies should reflect the board's tolerance for risk. Typical risk guidelines include:

-targeted cash flow gaps over discrete and cumulative periods and under expected and adverse business conditions -expected levels of unencumbered liquid assets -measures for liquid asset coverage ratios and limits on potentially unstable liabilities -concentration limits on assets that may be difficult to convert into cash -limits on the level of borrowings, brokered funds, or exposures to single fund providers or market segments -funding diversification standards for short-, medium-, and long-term borrowings and instrument types -limits on contingent liability exposures such as unfunded loan commitments or lines of credit -collateral requirements for derivative transactions and secured lending -limits on material exposures in complex activities

management should periodically assess the quality and marketability of the portfolio to determine

-the level of unencumbered securities available to pledge for borrowings -the financial impact of unrealized gains and losses -the effect of changes in asset quality -the potential need to provide additional collateral should rapid changes in market rates significantly reduce the value of longer-duration investments pledged to secure borrowings

a deposit management program should consider:

-the make-up of the market-area economy -local and national economic conditions -potential for investing deposits at acceptable margins -management competence -adequacy of bank operations -location and size of facilities -nature and degree of bank and non-bank competition -effect of monetary and fiscal policies on the bank's service area and capital markets in general

a listing service is not a deposit broker if the listing service satisfies each of the following requirements:

-the person or entity providing the listing service is compensated solely by means of subscription fees and/or listing fees and does not require a depository institution to pay for other services offered by the listing service as a condition precedent to being listed -the fees paid by banks are flat fees -the listing service only performs the gathering and transmission of information concerning the availability of deposits -the listing service is not involved in placing deposits

to be effective in liquidity risk management, the board should ensure it:

-understands and periodically reviews the institution's current liquidity position and contingency funding plans -understanding the institution's liquidity risk and periodically reviews information necessary to maintain this understanding -establishing an ALCO and guidelines for electing committee members, assigning responsibilities, and establishing meeting frequencies -establishes executive-level lines of authority and responsibility for managing the institution's liquidity risk -provides appropriate resources to management for identifying, measuring, monitoring, and controlling liquidity risks -understands the liquidity risk profiles of significant subsidiaries and affiliates

diversified funding sources

-undue reliance on any one source of funding can have adverse consequences in a period of liquidity stress -management should consider correlations between sources of funds and market conditions and have available a variety of short-,medium-, and long-term funding sources -the board is responsible for setting and clearly articulating a bank's risk tolerance in this area through policy guidelines and limits for funding diversification

benefit of cash flow forecasts

-useful for banks and become essential when operational areas become more complex or distinct from other areas in the bank -enhance ability to evaluate and manage these areas individually and collectively -should allow management to determine an appropriate response to both tactical (short-term) and strategic (medium- and long-term) needs

Sound liquidity and funds management policies typically

1) provide for the effective operation of the ALCO 2) provide for the periodic review of the bank's deposit structure 3) address permissible funding sources and concentration limits 4) provide a method of computing the bank's cost of funds 5) establish procedures for measuring and monitoring liquidity 6) address the type and mix of permitted investments 7) provide for an adequate system of internal controls 8) include a contingency funding plan that identifies alternative funding sources if liquidity projections are incorrect or a liquidity crises arises 9) require periodic testing of liquidity lines 10) establish procedures for documenting and reviewing assumptions used in liquidity projections 11) define procedures for approving exceptions to policies, limits, and authorizations 12) identify permissible wholesale funding sources 13) define authority levels and procedures for accessing wholesale funding sources 14) establish a process for measuring and monitoring unused borrowing capacity 15) convey the board's risk tolerance by establishing target liquidity ratios and parameters under various time horizons and scenarios 16) include other items unique to the bank

What are the indicators of a serious liquidity problem?

1- Large turndowns in brokered deposit markets 2- Rating sensitive providers (money managers and public entities) abandon the bank 3- Early withdrawal requests from depositors, or the bank has to repurchase its paper in the market 4- Transaction sizes decreasing and counterparties unwilling to enter into short-term transactions 5- Increasing spreads paid on deposits relative to local competitors and national and regional composites

What are some liquidity "warning signals?"

1- Rapid growth and volatile funding 2- Negative publicity 3- Decline in asset quality 4- Potential/Actual credit rating downgrades 5- Cancellation of loan commitments 6- Wide secondary market spreads on senior debt 7- Counterparties increase collateral requirements and demand more 8- Counterparties decrease/terminate borrowing lines 9- Counterparties unwilling to deal in unsecured & long-term transactions

what is liquidity?

A financial institution's ability to fund assets and meet financial obligations. Essential to meet customer withdrawals, compensate for balance sheet fluctuations, and provide funds for growth.

securities repurchase agreement (repo)

An institution agrees to sell a security to a counterparty and simultaneously commits to repurchase the security at a mutually agreed upon date and price. A form of secured borrowing. Used as short-term, relatively low cost, funding mechanisms. The interest rate paid on a repurchase agreement depends on the type of underlying collateral.

management of federal funds

Appropriate board approvals, limits, and policies should be in place and plans should be in place for developing appropriate long-term funding solutions. Institutions should avoid undue reliance on FFP, as the funds are usually short-term, highly credit sensitive instruments that may not be available if an institution's financial condition deteriorates

loan commitments

Common off-balance sheet items. Typical commitments include unfunded commercial, residential, and consumer loans; unfunded lines of credit for commercial and retail customers; and fee-paid commercial letters of credit.

market access

Critical as it affects an bank's ability to raise new funds and to liquidate assets. Senior management should ensure that market access is actively managed, monitored, and tested by appropriate staff. Such efforts should be consistent with the bank's liquidity risk profile and sources of funding. Reputation risk plays a role - liquidity risk managers should be aware of any information that could affect perceptions of an bank's financial condition.

large depositors

Customer/entity that owns or controls 2% or more of the bank's total deposits. Considered to be potentially volatile. May be considered stable if customer has ownership in the bank, has maintained a long-term relationship with the bank, has numerous accounts, or uses multiple bank services. May not be stable if the depositor receives a high deposit rate, but maintains no other relationships with the institution.

public funds

Deposits of government entities such as state or local municipalities. Some states require banks to secure the uninsured or entire balance of these accounts. Often secured with US or GSE securities.

What does part 337 say about Standby Letters of Credit?

Each insured SNB must maintain adequate control and subsidiary records comparable to record's maintained on loans. All such standby letters must be adequately reflected on the bank financial statements. Exemptions: · Prior to or at the time of issuance, the bank is paid an amount equal to the maximum liability · Issuing bank has set aside sufficient funds in a segregated deposit account earmarked for that purpose.

international funding sources

Eurodollar deposits are US dollar-denominated deposits taken by a bank's overseas branch or its international banking facility

derivatives

Financial contracts that generally obtain their value from underlying assets, interest rates, or financial indexes. Can be used to reduce business risks. Interest rate swaps involve periodic net settlement of swap payments that can affect cash flows. Banks using derivatives must understand and carefully manage the liquidity, interest rate, and price risks of these instruments

commercial paper

Generally a short-term, negotiable promissory note issued for short-term funding needs by a bank holding company, large commercial bank, or other large commercial business. Usually matures in 270 days or less, is not collateralized, and is purchased by institutional investors. Used to quickly raise funds from the capital markets.

monitoring and management of assets pledged as collateral for borrowed funds

Institutions should set up reporting systems that facilitate the monitoring and management of assets pledged as collateral for borrowed funds. Reports should detail the value of assets currently pledged relative to the amount of security required and identify the type and amount of unencumbered assets available for pledging.

what is funds management?

Involves estimating liquidity requirements and meeting those needs in a cost-effective way. Requires estimating and planning for liquidity demands over various periods and consideration for how funding requirements may evolve under various scenarios, including adverse condition

If the bank offers a deposit product at a maturity not observed in the market, how is the market rate determined?

Linear interpolation

examination treatment of brokered deposits

When brokered deposits are encountered in a bank, examiners should consider the effect on overall funding and investment strategies and verify compliance with Part 337. Any loans tied to specific brokered deposits should receive special scrutiny.

What makes a bank a correspondent bank? What are excluded from being correspondent accounts?

Where an average aggregate balance exceeds the lesser of $100M or ½% of total deposits · Time deposits at prevailing market rates · Account is maintained solely for effecting Fed funds transactions

what is a listing service?

a company that connects banks seeking a deposit with those seeking to place a deposit. The listing service compiles and posts the bank's deposit rate information for consideration by interested depositors

deposit broker definition

any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions

secondary credit through Fed discount window

available to banks that do not qualify for primary credit and is extended on a very short-term basis at a rate above the primary credit rate

to meet expected and contingent liquidity demands....

banks must maintain sufficient levels of cash, liquid assets, and prospective borrowing lines

liquidity risk reports should

clearly highlight the bank's liquidity position, risk exposures, and level of compliance with internal risk limits