BAS Case Study - March 2023
Contingency Funding Plan The following strategies will be investigated to provide the Bank with the most efficient and cost effective means of creating the needed funding during critical periods: • Utilize Fed Funds Purchased Procedures with Great Lakes Bankers’ Bank. • Utilize Federal Home Loan Bank (FHLB) Overnight Borrowing Procedures. • Identify specific investment securities classified as available for sale (AFS) for potential liquidation. • Utilize FHLB Term Borrowing Procedures. • Suspend loan origination activities by either pricing over current market or curtailing certain loan products. • Identify segments of loans within the loan portfolio for potential liquidation or participation. Utilize the ability to sell eligible mortgage to FNMA. • Utilize Federal Reserve Bank Discount Window Borrowing Procedures. See Appendix A for a summary of the funding sources and those authorized to initiate the funding activities. While the funding strategies are listed in a preferred order of use, market conditions will vary and appropriate due diligence will be exercised in determining the most effective means of addressing the Bank’s liquidity shortfall. For example, current market rates may make the sale of AFS securities imprudent due to the loss or future earnings and/or the inability to sell the security at par or at a gain. In these types of situations, the designated persons/committee may decide that a FHLB term borrowing is more advantageous. Significant Liquidity Shortfall In the event of a significant liquidity shortfall, Senior Management and/or the ALCO will consider the duration of the liquidity demands and develop the strategy that is deemed to most effectively address the circumstances. The long term impact on customer service will be the highest consideration in implementing the most effective strategy. The inside members of the ALCO will be responsible for the following: • Communicate with the full Board of Directors and Regulators. For example, if the committees and Senior Management sell loans or utilize a FHLB term loan, these are reported after-the-fact at the next Board meeting. If significant liquidity shortfall is developing, the Board will communicate immediately with the Regulators. • Formulate communications with Bank officers. For example, inform all Bank officers and lenders of a decision to suspend loan origination efforts or the repricing of products to stimulate deposit growth or discourage loan demand. • Contact borrowing sources to determine pricing on the established line of credit and make notification that draws against the line may be likely. • Review the individual investments within the AFS portfolio and contact the FTN Financial representative to determine current market pricing. • Determine the anticipated loan origination requirements and the pricing of the current pipeline along with that of the current market. • Establish new correspondent relationships to replace funding sources that, for any reason, are no longer available. • Evaluate pricing and term opportunities for local market certificates of deposit.
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