Capital Markets School - Case Study

 Federal Reserve Bank borrowings. Primary Credit Facility. Upside Downside Relatively inexpensive (FF target rate plus 25 bps). Availability unlimited, subject to acceptable collateral. Wide range of collateral accepted. Streamlined paperwork.

Should primarily be used as backup liquidity. Generally, only available on an overnight basis, although short-terms can be negotiated. Must be collateralized.

Term borrowings pre-payable without penalty. “No questions asked” policy by Fed and occasional borrowing is acceptable to examiners.

 Federal Reserve Bank borrowings. Secondary Credit Facility. Upside Downside

Relatively inexpensive (FF target rate plus 50 bps). Suitable as a backup source of funding on very short-term basis, or to facilitate an orderly solution of serious financial difficulties. Available to banks that do not qualify for primary credit, i.e. examination rating of 4 or 5, or a less than adequately capitalized institution.

Must be collateralized. Generally only available on an overnight basis, although extended terms can be negotiated, subject to statutory requirements. Reserve Banks will collect information necessary to confirm that borrowing is consistent with regulatory requirements.

 Issue brokered CDs. Upside

Downside

Long term funds available. No collateral required. Numerous deposit broker sources exist in the marketplace.

Limited amount of funding. Negative regulatory opinion. May or may not be competitively priced relative to other funding sources.

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