Domestic borrowings:
Retail repos must meet what criteria to be exempt from the interest rate restrictions and prohibitions of Part 329? (6.2-3)
1) Arise from direct obligations of U.S. Government
2) Be in denominations of less than $100M
3) Mature in less than 90 days
4) Obligate the bank to repurchase the underlying Federal securities
What would constitute an other borrowing? ("Other Borrowed Money") (6.2-2)
b. Eurocurrency deposits (Eurodollars)
c. Federal Funds Purchased
d. Securities purchased under a Repo
e. Fed Window Borrowing
f. Repos
Borrowings - define certain types or determine from choices what is considered a domestic borrowing.
Most common ST non-deposit funding sources are: federal funds purchased, ST credit from Federal Reserve Bank, REPOS -securities/loans sold under repurchase agreement, retail REPOS, and TT&L loans.
Which of the following is a domestic borrowing?
a.FF Sold
b.Securities sold under a repurchase agreement (6.2-3)
c.Interest rate Swap
d. Interest rate option
b.Others include FF Purchased, Federal Reserve Bank discount window, Retail Repos, TT&L, and International Funding Sources (most common is the Eurodollar market). Eurodollar denomination deposits taken by a bank's overseas branch of its IBF. Volatile.
What are the four types of borrowings? (6.2)
1) Federal funds purchased
2) Fed window - Federal reserve bank
3) Repurchase agreements (Retail and Securities)
4) Treasury, Tax and Loan Note option
What type of accounts go into other liabilities? (6.2-10 thru 6.2-11)
Deferred Income Taxes (arising from timing differences)
Deferred gains on futures and standby contracts
Dividends payable (declared, but not yet paid)
Accumulated contract losses on forward and standby contracts
Unamortized Loan Fees (not adjustment of yield)
Bank's Liability for deferred payment on letters of credit
Negotiable CDs warrant special attention as a component of large deposits. They are usually issued by money center or large regional banks in denominations of $1,000M or more and may be issued at face value with a stated rate of interest or at a discount similar to U.S. Treasury Bills. CDs of major banks are widely traded, may offer substantial liquidity, and are the underlying instruments for a market in financial futures. They are ordinarily used to fund reinvestment goals of issuing banks as opposed to solving liquidity crises. These CDs have many features of borrowings and can be quite volatile.
Define a negotiable CD? (6.2-6)
1) Usually issued by money center or large regional banks in denominations of $1,000M or more
4) They are the underlying instruments for a market in financial futures.
(Usually used to fund reinvestment goals of issuing banks as opposed to solving a liquidity crises. Can be quite volatile. Clearly a form of purchased funds.
Which is not a characteristic of a negotiable CD? (6.2)
· backed by government or municipals
· matures in 90 days
When are borrowings justified? (6.2-2)
1) To meet the temporary or seasonal loan or cash requirements of the bank's customers.
2)To meet large and unanticipated deposit withdrawals which may arise during periods of economic distress.
3) To serve as an effective management tool, i.e., liability management, whereby banks engaged in money market transactions may borrow on a more or less continuous basis.
Characteristics of Eurodollar? (6.2-4)
A.Free of reserve requirements and deposit insurance assessments.
B.Taken by a bank's overseas branch or its international banking facility (IBF).
What are the factors involved in the deposit analysis (Deposit Mgmt Program) (6.2-5)
2) Projections for deposit growth and structure
3) Associated cost and interest rate scenarios
4) Procedures to compare actual results against projections
For example, name 3 or 4 things which should be included in a bank's deposit mgmt program if it had a large volume of public (Muni) deposits (see 6.2-4)?
Development of a Deposit Management Program should take into account:
1) The make-up of the market area economic base
2) Potential for investing deposits at acceptable margins
3) Existing management competence
4) Adequacy of bank operations
5) Location and size of facilities
6) Nature and degree of bank and nonbank competition
7) Impact of local and national economic conditions
8) The effect of monetary and fiscal policies of the Federal Government
Bank Investment Contracts (BICs) (6.2-7)
A BIC is a deposit contract between a bank and its customer that permits the customer to deposit funds over a period of time and obligates the bank to repay the amounts deposited plus interest at a guaranteed rate to the end of the contract term. The contract may range from six months to as long as ten years although, more typically, three years.
It is a non-transferrable liability, i.e. not saleable in the secondary market. Usual customers are sponsors of employee benefit plans such as pension plans or deferred compensation plan (401(k)). Principal risks interest rate risk and liquidity.
Which of the following is not a deposit? (trust accounts, cashiers checks, international banking facility) (6.2)
The following are NOT reported as deposits:
· Deposits of trust funds standing to the credit of other banks and all trust funds held or deposited in any department of the reporting bank other than the Trust Department.
* Public Funds
review for size and potential volatility
Settlement Risk
Credit Risk
Systemic Risk