liquidity management - cuna councils...liquidity management “liquidity management is the process...

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

1

221

3

4

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


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


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


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


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%


Fed’s Discount Window & Payment System Risk Collateral

Margins Individually Deposited (Minimal

Risk Rated)


Margins

LISTING INDIVIDUALLY DEPOSITED GROUP DEPOSITED

1-4 Family Mortgage Loans (First Lien) 81% - Conventional 75% - Interest Only




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


Loans & Leases





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%


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


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


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


Fed’s Discount Window & Payment System Risk Collateral

Margins (Minimal Risk Rated)


Margins

DELIVERY INDIVIDUALLY DEPOSITED GROUP DEPOSITED

1-4 Family Mortgage Loans (First Lien) 81% - Conventional Mortgages 75% - Interest Only




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


Loans & Leases





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.

liquidity management - cuna councils...liquidity management “liquidity management is the process...

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