Skip to main content

Use an Interest-Rate Swap to Achieve Fixed-Rate Funding

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

  • IntraFi FundingSM (formerly 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 IntraFi Funding (formerly ICS).