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Liquidity Management
Regulatory Burden vs. Business Opportunity
Kevin C. Parks VP/Key Account Manager
Federal Home Loan Bank of Topeka
PERSPECTIVES ON LIQUIDITY & RISK
The Liquidity Question? • What do we have now? • Is that enough and what am I
comfortable with? • What will we need in the
future? • Where will I get it? • What will it cost and can I
afford it? • What do we need to support
our strategy? • How do I balance Liquidity,
Margin & IRR?
LIQUIDITY “The ability to fund assets
and meet financial obligations without incurring damaging losses.”
LIQUIDITY RISK “The inability to meet
payment obligations in a timely and cost effective manner resulting from: – Inability to obtain adequate
funding without affecting CU’s financial condition
– Inability to liquidate assets without significant losses
– Counterparty inability to pay or settle transactions because of a lack of liquidity”
Liquidity Management “Liquidity management is the process of: • Monitoring cash flow and liquidity of assets to meet
expected operating demands in form of share withdrawals, loan demand and operating needs;
• Establish and maintain appropriate liquidity cushions considering the environment and strategic goals;
• Anticipate, plan for and respond to emerging or unanticipated liquidity demands to minimize risk.”
• Managing profitability and assuring viability in different economic scenarios
Liquidity & Funding Sources Contingent
Liquidity
Primary Core Liquidity &
Cushion
Secondary Non Core Liquidity & Funding
Cash, Cash Equivalents, Trading Securities, Normal Cash Flow from Assets & Liabilities
AFS Investments, Lines of Credit, Wholesale Sources, Asset Sales
Federal Contingency Sources, Equity
LIQUIDITY RISK
CU SPECIFIC RISK SYSTEMIC RISK
TACTICAL/ SHORT TERM
STRATEGIC / LONG TERM
CONTINGENCY
Counterparty inability to pay or settle transactions; or inability to offset or eliminate a position because of inadequate market depth or disruption
Inability to meet expected and unexpected current and future cash flow and collateral needs without affecting daily operations or financial condition
Coverage of a liquidity related net outflow
Ensuring long term funding at reasonable costs
Protection in liquidity crises situations
Dimensions of liquidity risk:
Management focus
CU SPECIFIC LIQUIDITY RISK DRIVERS ASSETS LIABILITIES
Quality of Assets Collectability of P&I
Acceptance as collateral
Marketability of Assets Readily able to be sold
Value/Price Quick conversion to cash
Funding Diversification Concentration Exposure
Cost/Duration Sensitivity
Funding Volatility Predictable cash flows
Stability/Reliability
Equity Adequacy
Access
Off Balance Sheet Items Unused commitments
Available lines of credit Contingent Obligations
Liquidity & Strategic Risk
• Excessive Liquidity Cushion – Highly liquid assets generally have
lower yields/returns – Deposit costs – Impact on capital ratios – Inefficient utilization – Lower profitability and capital growth – Lower overall “member value and
return” • Insufficient Liquidity Cushion
– Inability to seize business opportunities and market share in periods of stress when others pull back
– Inability to acquire assets or competitors when assets undervalued in times of stress
– Inability to grow
Liquidity Reputation Risk
Concentration Risk
Example of Risk Interrelationship Mismatch in
assets & liabilities/lending
to high risk borrowers
CU reports reduced
earnings/losses
Members/Media reports about
credit & Interest rate difficulties
Higher interest rates to keep and attract depositors
Depositors withdraw funds
Replacing cheap funding with expensive funding and/or selling assets
Further reduction of profits or reporting of losses
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REGULATORY EXPECTATIONS
Regulatory Perspective Past Regulatory Oversight
• Much of existing supervisory guidance dates back to 1979 when CAMELS rating system was created
• Examiners tended to focus more on balance sheet position more than liquidity management
• Liquidity measures focused on assets as the liquidity source – Investments – liquid – loans – illiquid
• Deposits were considered the only stable source of funding – Skepticism related to other sources
of funds
Current Perspective • Traditional funding sources still
well regarded, however • Diversified funding is considered
a positive – On balance sheet liquidity
• Highly liquid assets are essential – Access to and use of market
sources of funds • Be in a position to borrow from
market counterparties – Access to federal liquidity providers
• Both liquidity position and risk management are important
• “What if?” planning is essential
NCUA Risk Management Requirements ASSET SIZE REQUIREMENT
< $50 MILLION 1. Basic written policy
Policy must include: Board approved framework for managing liquidity List of contingent liquidity sources that can be employed under adverse
circumstances
$50 MILLION OR MORE (1) 1. Written liquidity policy
In addition, CU must have: Contingency Funding Plan (CFP) that sets out strategies for addressing
liquidity shortfalls in emergencies
$250 MILLION OR MORE (1) 1. Written liquidity policy 2. Contingency Funding Plan In addition, CU must: Establish access to at least one contingent federal liquidity source
Discount Window CLF
Conduct advance planning and test of contingent funding sources
(1) Total assets exceed applicable threshold for two consecutive call reports
Interest Rate Risk Management
Liquidity Measurement & Management
Funds Management & Strategies
Capital Planning
Pricing and Structure
Growth Strategies
Investment Policy & Management
ALM Policy Components
The Liquidity Policy • Support the strategic plan/direction as well as the
desired risk profile of the CU • Tailored to size and complexity of CU • State purpose and goals of liquidity management • Define roles & responsibilities for liquidity
management • Set thresholds or approved limits for liquidity
cushion and risk • Liquidity measures, ratios, targets, forecasting • Identify primary and secondary sources of
operating liquidity • Contingency plans and event triggers for
implementation – Contingency funding sources – Periodic testing
• Periodic review and revision
Liquidity Measurement Tools STATIC BALANCE SHEET RATIOS
Loans to Shares
Borrowings & Non-member deposits/Total Shares & Liabilities
Cash & Short-term Investments/Total Assets
Net Liquid Assets/Liabilities & Shares
CONTINGENCY FUNDING PLANS
Modeling & Pro Forma Cash Flows
Liquidity Days/Buffer
Scenario Analysis
CFP Guidelines
• Include process to forecast/assess adequacy of liquidity sources
– Normal & contingent needs under plausible stress events • Identify specific contingency sources
– Backup lines of credit and when they would be used • Guide for managing range of liquidity stress events
– Track/monitor assets immediately available for pledging/sale
– Cash they would provide • Identify lines of authority for managing liquidity events
– Roles/responsibilities of crises management team – Integrate CFP with Continuity of Business Planning – Nature of communication among team, Board of Directors
& others • Identify possible liquidity events and responses
– CU specific or systemic market or operational circumstances
– Implications for short, intermediate, long term liquidity profile
– Management response to early warning indicators, event triggers
• Specify frequency plan will be tested and revised
Stress Testing the CFP
Key Questions & Issues • What are your strengths and weaknesses of plan? • Which funding sources do you have established?
– Adequate and available? – Costs and benefits of various funding sources?
• What sources will be available as your situation deteriorates? – i.e. loss of well capitalized status
Strategy: Prioritize use of sources with consideration to those that will
disappear as situation deteriorates
Federal Liquidity Sources Two backup sources of liquidity to on-balance sheet or
market sources: 1. FRB Discount Window 2. Central Liquidity Facility (CLF)
• Terms limited to overnight up to few months • CLF requires cash flow projections, justification and
plan • Collateral based lending facilities • Funds available 1 to 10 days from request
TRENDS, POTENTIAL ISSUES AND STRATEGIES
Credit Union Liquidity
83.27 83.08
76.04
71.80
69.05 68.04
70.82
74.84
77.40
60.00
65.00
70.00
75.00
80.00
85.00
2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Loans/ Total Shares
Total Loans/ Total Shares
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
2007 2008 2009 2010 2011 2012 2013 2014 2015
Liquid Assets/Assets
Liquid Assets/ Assets Avg. Liquid Assets 15.60%
Source: SNL US Credit Union Aggregate
Funding Future Loan Growth
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015
CU Loan, Investment & Deposit Growth
Loan Growth Investment Growth Deposit Growth
Source: SNL US Credit Union Aggregate
Deposit Mix 2007-2015
Total Non Maturity Deposits
56%
Total Deposits < 1 Year
33%
Non-member Deposits < 1
year 0%
Total Deposits > 1 Year
11%
2007
Total Non Maturity Deposits
72%
Total Deposits < 1 Year
16%
Non-member Deposits < 1
year 1%
Total Deposits > 1 Year
11%
2015
Source: SNL US Credit Union Aggregate
Deposit Volatility - Interest Rate Cycles?
Historical trends for deposit prices lagging market rate increases may not prove to hold true in the future: No precedent for magnitude of Fed intervention
taken Chronic weakness in global economy New liquidity rules for large banks
Deposit Volatility – Demand? Future demand for deposits: • Excess liquidity evaporating • Aggressive loan growth goals • Competitive deposit market
Source Media/ABA Survey • 43% anticipate deposit growth of 5% or more • 41% anticipate deposit growth of 2-5% • 86% concerned about competitive pressure for deposits
• Economy only expected to grow by 2.6% in 2016
Deposit Volatility – Price Competition?
Member Desire – Yield & Convenience? • Intentionally kept deposits short
– Lack of significant rate differentials – Desire to capture yield when it becomes available
• Lower levels of loyalty to financial institutions • Increased rate shopping in quest for yield
Mobile Banking Impact
Loan Composition 2007 - 2015
Credit Card Lns/ Loans
6% Other
Unsecured Lns/ Loans
5%
New Vehicle Lns/ Loans
16%
Used Vehicle Lns/ Loans
17%
Tot RE Lns/ Loans 51%
Leases Receivable/
Loans 0%
All Oth Lns to Mem/ Loans
5%
2007 Credit Card Lns/
Loans 6%
Other Unsecured Lns/
Loans 4%
New Vehicle Lns/ Loans
13%
Used Vehicle Lns/ Loans
21%
Tot RE Lns/ Loans 51%
Leases Receivable/
Loans 0%
All Oth Lns to Mem/ Loans
5%
2015
Source: SNL US Credit Union Aggregate
Growth in Longer Term RE Assets
22.79%
5.61%
15.28%
11.97% 2.42%
8.34%
18.56%
0.77% 13.61%
0.65%
2007
Fixed Rate 1st Mtg >15 yrs
Hybrid First Mtg >5 yrs
Fixed Rate 1st Mtg=<15 yrs
Hybrid First Mtg =<5 yrs
Adj Rt 1st Mtg=<1yr
Adj Rt 1st Mtg>1yr
Fixed Rate Oth RE
Adj Rate Oth RE
Rev 1-4 Fam (HE Lines)
Open Ended Fxd Rate
27.02%
9.43%
20.40%
11.48% 2.15%
10.69%
6.29% 0.62% 11.61%
0.30%
2015
Fixed Rate 1st Mtg >15 yrs
Hybrid First Mtg >5 yrs
Fixed Rate 1st Mtg=<15 yrs
Hybrid First Mtg =<5 yrs
Adj Rt 1st Mtg=<1yr
Adj Rt 1st Mtg>1yr
Fixed Rate Oth RE
Adj Rate Oth RE
Rev 1-4 Fam (HE Lines)
Open Ended Fxd Rate
Potential On-Balance Sheet Issues • CU liquidity has declined past 3
years • Loan growth has exceeded deposit
growth past 3 years • RE loan portfolio has continued to
lengthen • Deposit base has shifted
significantly to non-maturity based products subject to increased volatility
• Cost of deposit transaction increased from $.48 in 1992 to $1.12 in 2015
• Future growth expected to be funded by deposits in a highly competitive environment
• Inadequate processes for setting deposit prices with half of market following benchmarks or competitive pricing
• Customer deposits may leave as they pursue yield or a better mobile app
On-Balance Sheet Strategies • Establish and maintain a targeted liquidity
cushion - # days liquidity coverage • Evaluate your ALM risk models and the
assumptions used for non-maturing deposits
• Appropriately classify securities into Trading, AFS and HTM categories based on strategy/policy
• Evaluate your funding strategy & structure for appropriateness given the risk inherent in your B/S
• Use FHLB Letters of Credit to collateralize PUDs if you are eligible to accept vs. pledging securities
• Have a solid core funding strategy based on convenience, service & technology
• Do not overpay for deposits. Deposit pricing strategies should reflect the value of the relationship – broad/deep vs. single use – as well as the all in cost of acquisition, servicing & rate
• Annually review CD only clients to “scrub” the list and take advantage of wholesale pricing efficiencies
• Price CDs to the wholesale funding curve for CD only clients and add on bp’s for relationship additions
• Consider a blended funding strategy of deposits and wholesale sources to manage volatility and margin pressures
Use of Wholesale Funding
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Growth in Borrowed Funds ($000)
Draws Against L/C Promissory and Other Notes Repurchase Transactions
Subordinated Debt Subordinated Debt Incld in Net Worth Uninsured Secondary Cap
Total Borrowings
Source: SNL US Credit Union Aggregate
Three Fundamental Reasons to Use Wholesale Funding
Pricing Efficiency • Rate Improvement • CU hesitancy to lower
rates for relationship reasons
• Total cost of deposits – acquisition & operations
• Improved spreads and profitability
Availability • Members unwilling to
extend out deposit term • Significant opportunity
for maturities > 1 year • Lower volatility than
deposits
Interest Rate Risk Management • Maturity & interest rate
alignment • Availability of blended
funding strategies
Secondary Liquidity & Funding Issues
• Ability to convert assets to cash without a loss
• Delayed funding from asset sales • Impact of selling HTM
investments • Access to wholesale funding
sources • Sufficient unencumbered assets
available as collateral for wholesale funding
• Cost of borrowings compared to other sources, i.e. brokered deposits
• Interest rate risk within B/S • Funded short to minimize cost
and maximize margin at potentially greater IRR
Liquidity & Funding Strategies • Extend out funding to take
advantage of current low rates • Identify and code RE loan assets
in portfolio that qualify for sale to investors
• Establish investor relationships that provide same day funding upon delivery
• Establish safekeeping arrangements that provide immediate access to collateral for borrowing
• Periodically test your access to funding sources
• Maximize borrowing capacity through strategic pledging of assets and assigned value
• Account for all aspects affecting net funding cost including interest accruals, interest payment frequencies, FHLB stock dividends
• Establish and maintain access to multiple borrowing sources and keep your membership at the FHLB
Non-Core Funding Another Concept Strategy: Segment balance sheet assets into “retail” and “wholesale” components • “Retail” assets might refer
to your “Hold or HTM” loan portfolio
• “Wholesale” assets might refer to your “Held for Sale” loans; indirect loan portfolios & the Investment portfolio
Why? • Provide basis/reasoning for
categorizing liabilities as “retail” and “wholesale”
• Supports rationale for use of non-core alternative sources e.g. FHLB advances
• Fund “hold” loan growth with core funding
– Even in expected slower deposit growth periods
• Funding “wholesale” assets with wholesale funding will enable you to use all 3 non-core advantages of availability, price efficiency and IR risk management/maturity efficiency
• Regulators don’t like use of non-core funding to fuel “unwise” loan growth. This approach provides rationale basis for growth strategy and funding
Summary • Liquidity and effective liquidity management is essential to the
safety and soundness of the CU • Liquidity should be viewed from both a strategic and risk
perspective • It must be actively managed & monitored with funding plans
continually evaluated and analyzed • A variety of funding sources and strategies should be available to
support the CU’s business plan and desired risk profile • You should have a vibrant non-core wholesale funding strategy to
handle opportunities where price, availability and/or maturity issues are important
ADDITIONAL INFORMATION APPENDIX
FHLB System Overview
How the FHLB System Works
FHLB Liquidity Portfolio
FHLB Credit Risk Management
FHLB Mortgage Purchase Program
LIQUIDITY CASH FLOW WORKSHEET
Date:
PRIMARY LIQUIDITY: 30 Days 60 Days 90 Days 180 Days 365 Days
Cash & Equivalents (Beginning Balance)
Less Minimum Needed for Daily Operations
Primary Liquidity Position (Beginning Balance) (A)
NET CASH FLOW FROM OPERATIONS: 30 Days 60 Days 90 Days 180 Days 365 Days
Cash In‐Flow From Deposits (new & rollover)
Public Funds
Potential Volatile Retail Deposits
All Other Deposits
Net Income
Cash In‐Flow From Assets (Payments, Maturities & Sales)
Loans
Investments
Other Assets
Total Operating Funding Sources (B)
Cash Out‐Flow From Deposits (maturities, WD's)
Public
Potential Volatile Retail Deposits
All Other Deposits
Cash Out‐Flow From Assets (Renewals, New)
Growth in Total Loans
Growth in Investments
Growth in Other Assets
Total Operating Funding Uses/Needs (C)
CUMULATIVE NET GAP FROM OPERATIONS (B‐C) +Surplus/‐Deficit
NET CASH FLOW FROM FINANCING ACTIVITIES: 30 Days 60 Days 90 Days 180 Days 365 Days
Secured Liabilities:
New Secured Liabilities/Renewals (+)
Maturities/Payoffs (‐)
Unsecured Credit
Brokered Deposits
Renewals/New (+)
Maturities/WD's (‐)
Other Wholesale Deposits
Renewals/New (+)
Maturities/WD's (‐)
Equity/Capital
Dividends to Members
CUMULATIVE NET GAP FROM FINANCING (D)
TOTAL PRIMARY LIQUIDITY (A+B‐C+D)
CONTINGENT/SECONDARY LIQUIDITY: 30 Days 60 Days 90 Days 180 Days 365 Days
Saleable/Pledgeable Securities
Saleable/Pledgeable Loans
Saleable/Pledgeable Other Assets
Total Saleable/Pledgeable Assets (E)
Available Wholesale Funding:
Secured Borrowing Capacity (FRB,CLF,FHLB)
Unsecured Credit Capacity
Broker Deposit Capacity
Other Wholesale Deposit Capacity
Total Remaining Wholesale Funding Capacity (F)
TOTAL CONTINGENT/SECONDARY LIQUIDITY (E+F)
TOTAL LIQUIDITY (Primary + Contingent)
COLLATERAL LENDING VALUE COMPARISON
The following table presents the ranges of effective lending values for the blanket lien, listing and delivery methods of pledging collateral at the FHLB of Topeka, the Federal Reserve (Fed) Discount Window & Payment System Risk Collateral Margins Table effective August 3, 2015, and The Credit Union Central Liquidity Facility (Collateral Margins Table effective July 1, 2014).
Collateral Type CLVs for Loans and Securities for FHLBank Topeka
Fed’s Discount Window & Payment System Risk Collateral Margins
(Minimal Risk Rated)
Central Liquidity Facility Collateral
Margins BLANKET INDIVIDUALLY DEPOSITED GROUP DEPOSITED
1-4 Family Mortgage Loans (First Lien) 81% - Conventional 75% - Interest Only
71% - 95% Fixed Rate 65% - 95% Adjustable Rate 76%
FHA Loans 94% < 90 Days Delinquent 90% > 90 Days Delinquent 91% - 95% 90%
VA Loans 91% < 90 Days Delinquent 87% > 90 Days Delinquent 91% - 95% 90%
Held For Sale Mortgages 1-4 Family Eligible FNMA, FHLMC, GNMA -
93% Not Eligible 81%
Multifamily Mortgage Loan 77% 48% - 95% Fixed Rate 55% - 95% Adjustable Rate 57% -63%
Other U.S. Government-guaranteed Loans 92% - USDA FSA and SBA Loans 91% - 95% 90% 1-4 Family Mortgage Loans (Second Lien, Home Equity) 68% 61% - 95% 72%
CFI Collateral 58% - Ag Operating 51% - Equipment
67% - 95% Commercial and Industrial
Loans & Leases
63% Commercial Loans & Leases
Agricultural Real Estate 68% 67% - 95% 67% Commercial Real Estate Loans 65% 48% - 95% 57%
Construction Loans 66%- Single Family Residential
52% - Multifamily and Commercial Real Estate
18% - 95% 63%
Raw Land Loans NA 21% - 95% 44% Student Loans 82% 60% - 95% 83% Private Banking Loans NA 54%-95% Consumer Loans – Unsecured NA 55%-95% 60% Consumer Loans & Leases (auto, boat, etc.) NA 41%-95% 76% GROUP DEPOSITED Consumer Loans – Credit Card Receivables NA 76% 59% Consumer Loans – Subprime CC Receivables NA 71% 54%
Collateral Type CLVs for Loans and Securities for FHLBank Topeka
Fed’s Discount Window & Payment System Risk Collateral
Margins Individually Deposited (Minimal
Risk Rated)
Central Liquidity Facility Collateral
Margins
LISTING INDIVIDUALLY DEPOSITED GROUP DEPOSITED
1-4 Family Mortgage Loans (First Lien) 81% - Conventional 75% - Interest Only
71% - 95% Fixed Rate 65% - 95% Adjustable Rate 76%
FHA Loans 94% < 90 Days Delinquent 90% > 90 Days Delinquent 91% - 95% 90%
VA Loans 91% < 90 Days Delinquent 87% > 90 Days Delinquent 91% - 95% 90%
Multifamily Mortgage Loan 77% 48% - 95% Fixed Rate 55% - 95% Adjustable Rate 57% -63%
Other U.S. Government-guaranteed Loans 92% - USDA FSA and SBA Loans 91% - 95% 90% 1-4 Family Mortgage Loans (second lien, home equity) 68% 61% - 95% 72%
CFI Collateral 58% - Ag Operating 51% - Equipment
67% - 95% Commercial and Industrial
Loans & Leases
63% Commercial Loans & Leases
Agricultural Real Estate 68% 67% - 95% 67% Commercial Real Estate Loans 65% 48% - 95% 57%
Construction Loans 66%- Single Family Residential
52% - Multifamily and Commercial Real Estate
18% - 95% 63%
Raw Land Loans NA 21%-95% 44% Private Banking Loans NA 54%-95% 83% Consumer Loans – Unsecured NA 58%-95% Consumer Loans & Leases (auto, boat, etc.) NA 41%-95% 60%
Student Loans 82% 60% - 95% 76% GROUP DEPOSITED Consumer Loans – Credit Card Receivables NA 76% 59% Consumer Loans – Subprime CC Receivables NA 71% 54%
Collateral Type CLVs for Loans and Securities for FHLBank Topeka
Fed’s Discount Window & Payment System Risk Collateral Margins
(Minimal Risk Rated)
Central Liquidity Facility Collateral Margins
DELIVERY INDIVIDUALLY DEPOSITED DELIVERY
Cash, Term Deposits 100% 100% 100% Term Dep
90% CDs, BA, Comml Paper -< 5 years duration
U.S. Treasuries, Agency Notes and Bonds 98% - 99%- < 1 year duration
97% - 98% - 1 year - 5 Year duration 95% - > 5 year duration
Bill, Notes and Bonds 99% - < 5 years duration
97%- 5 -10 years duration 95% - > 10 year duration
Bill, Notes and Bonds 90%
State and Local Government Securities (Municipal Bonds) Case-by-case
98% - < 5 years duration 96%- 5 -10 years duration 94% - > 10 year duration
90%
Agency MBS and Residential Mortgage Pass Through Securities 97%
98% - < 5 years duration 96%- 5 -10 years duration 94% - > 10 year duration
90%
Agency CMOs 97% GNMA, FNMA, FHLMC only
Pass Through and CMS 98% - < 5 years duration
96%- 5 -10 years duration 94% - > 10 year duration
Pass Through and CMO 90%
Private Label Pass Through and CMOs
89% - 93% - AAA 84% - 91% - AA
CMO - AAA 90% -< 5 year duration
89% - 5- 10 year duration 86% - 10 year duration
AAA 90% - < 5 years duration
84%- 5 -10 years duration 83% - > 10 year duration
Asset Backed Securities
AAA-BBB 96% - 98% -< 5 year duration
88% - 94% - 5- 10 year duration 77% - 90% - 10 year duration
AAA-BBB 89% - 90% -< 5 year duration
86% - 90% - 5- 10 year duration 82% - 83% - 10 year duration
Collateralized Debt Obligations - AAA NA 78% - 83% 90%
Commercial Mortgage Backed Securities
93% - AAA 100% Defeased 88% -AAA, < 100% 79% - AA, < 100%
AAA 95% -< 5 year duration
89% - 5- 10 year duration 85% - 10 year duration
AAA 90%
Other Securities 95% FDIC & NCUA guar notes
95% - 98% SBA securities 97% Student Loan ABS
N/A
90% NCUA CU liq guar notes 90% Corp bonds BBB-AAA rated
90% Trust Preferred Sec 65% GSE Stock
Collateral Type CLVs for Loans and Securities for FHLBank Topeka
Fed’s Discount Window & Payment System Risk Collateral
Margins (Minimal Risk Rated)
Central Liquidity Facility Collateral
Margins
DELIVERY INDIVIDUALLY DEPOSITED GROUP DEPOSITED
1-4 Family Mortgage Loans (First Lien) 81% - Conventional Mortgages 75% - Interest Only
71% - 95% Fixed Rate 65% - 95% Adjustable Rate 76%
FHA Loans 94% < 90 Days Delinquent 90% > 90 Days Delinquent 91% - 95% 90%
VA Loans 91% < 90 Days Delinquent 87% > 90 Days Delinquent 91% - 95% 90%
Multifamily Mortgage Loans 77% 48% - 95% Fixed Rate 55% - 95% Adjustable Rate 57% -63%
Other U.S. Government-guaranteed Loans 92% - USDA FSA and SBA Loans 91% - 95% 90%
1-4 Family Mortgage Loans (Second Lien, Home Equity) 68% 61% - 95% 72%
CFI Collateral 58% - Agricultural Operating 51% - Equipment
67% - 95% Commercial and Industrial
Loans & Leases
63% Commercial Loans & Leases
Agricultural Real Estate 68% 67% - 95% 67% Commercial Real Estate Loans 65% 48% - 95% 57%
Construction Loans 66%- Single Family Residential
52% - Multifamily and Commercial Real Estate
18% - 95% 63%
Raw Land Loans NA 21% - 95% 44% Private Banking Loans NA 54%-95% 83% Consumer Loans – Unsecured NA 58%-95% Consumer Loans & Leases (auto, boat, etc.) NA 41%-95% 60%
Student Loan Securities 82% 60% - 95% 76% GROUP DEPOSITED Consumer Loans – Credit Card Receivables NA 76% 59%
Consumer Loans – Subprime CC Receivables NA 71% 54%
Effective August 2, 2015, the Fed’s will no longer provide collateral margins for Group Deposited Loans.
FEDERAL CONTINGENCY FUNDING SOURCES
FRB Discount Window Central Liquidity Fund Collateral • Fully Securitized Lender
• Lending Value Assigned to Different Classes • Financial Condition considered in assigning values • Listed and Delivered
• Fully Securitized Lender • Lending Value Assigned to Different Classes • Collateral coverage ratio of 110%
Eligibility • Collateral Arrangements • Agreements in place • Examination Rating 1,2,3 • Capital Status - Adequate
• Membership • Capital Stock Subscription • Collateral Arrangements • Agreements in Place • Demonstrated liquidity need • Detail schedule of cash flows prior 4 months and
projected • Creditworthiness
Timing Same-day funds to qualifying FI’s (subject to collateral requirements)
Approve/deny request within 5 business days Funding 3– 10 business days depending on requested dollar amount (subject to collateral requirements) CLF obtains match fund Federal Finance Bank (FFB) advance. May result in funding lag
Use/Purpose Primary: • Backup/ST liquidity • Enhance diversification in ST funding plans • No restrictions or questions • Viable take-out strategy to replace
Secondary: • FI’s do not quality for primary • Prompt return to market sources • Facilitate resolution of sig financial difficulties • Higher level of admin. Oversight Seasonal: • Assist small FIs with sig. seasonal swings • Demonstrate clear pattern of recurring swings • Required to have seasonal LOC in place Emergency: • Unusual and exigent circumstances • BOG may authorize credit to non-depository
institutions
Short Term Adjustments: • Temporary pending adjustment of Assets/Liab.
Seasonal: • Expected patterns of movement in share/deposit
accounts and loans Protracted Adjustment Credits: • Unusual or emergency situations of longer term
nature If CU fails creditworthiness standards may qualify for emergency assistance from NCUSIF
Duration/Term Primary: • Overnight • May be extended up to few weeks if eligible Seasonal: • Up to 9 months, advances mature monthly
• Loans up to 90 days • May renew for an additional term under certain
circumstances
Rate/Cost Primary: 100 bp above FOMC target fed funds rate Secondary: 50 bp above Primary rate
Based on facility cost plus fee for expenses Federal Finance Bank obtains rates from US Treasury
Testing Request an overnight borrowing • Unencumbered eligible collateral in place • Pre-pledge all or some portion of eligible collateral
Cannot conduct a test loan transaction (2) Can test transfer of funds against established wire delivery instructions
(1) CLF match-funds all of its liquidity advances with loans from the Treasury’s Federal Financing Bank (FFB). Under terms of this arrangement, CLF is only authorized to seek an advance from FFB when the underlying advance is for an actual liquidity need as set forth in Title III of the Federal Credit Union Act.
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