Large Bank Supervision Forum eBook

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Move from on balance sheet liquidity to borrowing capacity . . .

Day 1 Liquidity = Minute 1 Liquidity + Borrowing Capacity (e.g. pledged but unencumbered assets) with a target of >= 20%  Traditional liquidity would first focus on on-balance sheet capacity, but the speed at which banks can convert on balance sheet liquidity into cash takes time (too much time or in some cases too much loss). Banks need to understand the speed at which on balance sheet liquidity is truly available:  Treasury bills, bonds, and notes: T + 1  Agency bonds: T + 2

 Corporate bonds: T + 2  Municipal bonds: T + 2  Mortgage-Backed securities: T + 2

 The establishment of the Bank Term Funding Program by the Federal Reserve could be viewed as an acknowledgment that immediate borrowing capacity is more critical than some traditional on-balance sheet liquid assets.

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Internal Use Only

Borrowing capacity typically has the following same day availability timeframe . . .

FHLB: − Overnight funding is credited to a bank’s account quickly with the cut off at 5:00 pm. − Term funding must be secured before noon for same day settlement. Otherwise ,it will be the following day. If secured before noon, a bank’s account is typically credited quickly. FRB − Can secure funding up until 7:00 pm (like any other discount window program). FRB prefers that banks do not secure funding this late. − A bank’s account will be typically credited within 15 to 30 minutes.

Unsecured Borrowings and other lines − Cannot count on these sources for capacity in a crisis as they typically dry-up when needed − Good for diversity Bank Term Funding Program

− Great program. Do not use as a leverage funding strategy. − Be aware, the BTFP has a sunset date of March 11, 2024.

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