A $250 million bank needed more long-term, fixed-rate liability exposure. The bank’s deposit base was heavily weighted toward short-term, retail time deposits, and the bank needed protection in a rising-rate environment. The bank was looking for $5 million in 3-year funding.
Potential Solutions
- An FHLB bullet advance for three years
- A callable or noncallable 3-yr brokered CD
- Deposit listing services
- ICS®
- Balance sheet swap
- Matched against the right liability, the bank could perfect hedge accounting to create a fixed-rate equivalent
Benefits to Bank
- Provides a cheaper option than FHLB advance
- Is available without collateralization or stock purchase requirements
- Is treated as a deposit on the bank’s Call Report
- Leverages pre-existing relationship with Promontory Interfinancial Network
Bank’s Chosen Path
The bank decided to execute a 3-year swap against 3-year floating-rate funding tied to 1-month LIBOR through ICS.
