Capital Markets School - Case Study

Below is an analysis of each funding source:  Reduce on-balance sheet cash and due from banks, Federal funds sold and repurchase agreements. Upside Downside Easily accessible source of liquidity. Reducing assets will improve balance sheet ratios. May result in hard charge for correspondent bank services if current levels are not excessive.

 Investment portfolio maturities, cash flow, and/or sales. Upside Downside Primary source of liquidity. Reducing assets will improve balance sheet ratios. Yield give-up.

Market timing may result in realized losses.

 Loan portfolio maturities, cash flow, and/or sales. Upside Reducing assets will improve balance sheet ratios.

Downside

Yield give-up. Client service. Can be an unpredictable source of funds.

 Institute an “in market” deposit solicitation program. Upside Expand deposits within market area. Expand customer base through cross-sell of other products and services.

Downside

Cost can be high and success uncertain. Failing to meet regulatory capital standards can limit rates offered and hinder chances of success.

 Issue internet deposits. Upside

Downside

Readily available. Numerous deposit listing sources exist in the market place. Technically, a core deposit for regulatory ratios.

Requires daily monitoring. Failing to meet regulatory capital standards can limit rates offered and hinder chances of success. Realistically, can have a negative regulatory opinion. Small lots available with competitive pricing.

 Actively pursue public funds or large depositors. Upside

Downside

Efficient sources of funds Rates generally “in line” competitively. Program services exist to assist.

Limited to periodic bids. Funds can be volatile and are rate sensitive. Collateral required.

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