2024 Journal of Community Bank Case Studies

2024 COMMUNITY BANK CASE STUDY COMPETITION

Part II.4: Liquidity Planning In the aftermath of the 2023 bank closures, FCCB’s two primary liquidity-related goals were ensuring it had enough liquidity to meet regulatory standards and maintaining its normal operations (Guillaume). According to Guillaume, one of the bank’s first responses was to set up a line with the Federal Reserve’s BTFP (as mentioned in Part II.1), not necessarily intending to use it but to show regulators that the bank had that liquidity capacity available. FCCB’s management waited to see how the market would view the use of this line, and once it determined that the line was safe to use, it started using it in December of 2023. The bank chose to use the BTFP because it was a cheaper source of funds than others, such as the Federal Home Loan Bank (FHLB) lines (Guillaume). The bank pledged $54.5 million in securities available for sale to secure the BTFP line, and its outstanding balance on this line at the beginning of 2024 was $20 million (CZFS 44). FCCB’s primary source of liquidity, aside from customer core deposits, is its $1.07 billion line with the FHLB of Pittsburgh (Guillaume; CZFS 44). The bank also maintains several contingent borrowing lines with other institutions. These lines give the bank additional sources to draw from should problems arise with any of its regular funding sources and help to show regulators that the bank’s liquidity plan is healthy and sustainable. Guillaume says that examples of contingent lines for the bank include the Borrower-in-Custody of Collateral program from the Federal Reserve, a general line of $24 million with Zions Bank in Utah, and a $10

ALM is the process of managing the

mismatch between a firm’s assets and liabilities to mitigate resulting financial risk.

million line with Atlantic Community Bankers Bank. These lines are tested a few times yearly by borrowing overnight to ensure the bank can borrow against those lines and that the bank’s employees are familiar with how to access those contingent funds when needed (Guillaume). Part II.5: Funding Sources and Investment Strategy FCCB has many sources of funding. Each of these sources has pros and cons that influence how the bank chooses to use them. A general benefit of having multiple lines is the increased flexibility and reduced liquidity risk resulting from the diversification of funding sources. The FHLB line is used most frequently by FCCB because of its high limit and low cost. However, as Black explains, recent industry discussion suggests that the FHLB may be reluctant to act as a lender of last resort for banks, as it has been doing recently. This possibility may consequently lead to changes in FHLB lending in the future. In contrast, the BTFP line has the benefits of being flexible and cheaper than the FHLB line;

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