Changes in the Borrowing Landscape   Liquidity is still in demand for bankers. While the problem maybe isn’t as bad as it was during the peak of the rate cycle, cash is still difficult to come by – at least at a good price. This has been exacerbated by the Federal Reserve’s announcement that the Bank Term Funding Program (BTFP), which allowed banks to borrow against the par value of their investment collateral and refinance without penalty over the life of the program, now features a rate floor. This took the cost of borrowing from BTFP from the overnight swap rate plus ten basis points to the rate paid on reserves by the Fed, an immediate increase of about 60 basis points. The announcement came by surprise and without notice to bankers hoping to re-up on cash before the program was set to expire in March. This change has left some bankers feeling as if they’ve had the rug pulled out from underneath them. The result of the sudden change in structure with BTFP is one less effective liquidity source during a time where their value is still crucially important. Yet again, the market for reasonably priced funding has become a challenge. We’re all familiar with the outside sources of funding, and there are pros and cons to each: Federal Reserve Discount Window Pros: Stability Cons: Expensive, “last resort” stigma Federal Home Loan Bank Advances Pros: Immediacy Cons: Market value collateral requirements, maximum credit constraints Bank Term Funding Program Pros: Par value collateral Cons: Temporary, expensive Brokered Certificates of Deposit Pros: No collateral requirement, diversified source of funding Cons: Recommended limitation as a % of wholesale funding Brokered CDs may not be the first thought that comes to mind when the topic of liquidity comes up, but competitive pricing and the value of diversification coupled with no collateral requirements have more financial institutions tapping this market. Two visuals below, I believe, really drive this point home. Total par value of brokered CDs outstanding over the past eight years illustrated by the black bars   All-in cost of issuance versus other popular sources of funding, with the Treasury for reference. Contact us at Country Club Bank to learn more about our balanCD program, and to see if this approach fits into your balance sheet strategy.

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