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Bank Funding and Liquidity
"Pressures on bank liquidity appear to have intensified. . . Community banks have funded the gap between loan and deposit growth largely by liquidating investments. . . Management should ensure that complex funding products are well understood, especially those with embedded options that cause cash flows to change dramatically depending on market conditions." -- Alan Greenspan, March 7, 2001
The past two decades have seen major changes in the financial services industry, with many new competitors vying for the consumer's dollar. Growth in mutual funds, money market funds, equity markets and the like have lured core deposits out of banks. This shift in consumer funds has coincided with exceptionally strong loan demand over the past decade, causing loan-to-deposit ratios among banks to reach historic highs.
As a result, community banks have turned to use a variety of alternative funding mechanisms, such as Federal Home Loan Bank advances, Fed funds, loan participations, repurchase agreements, brokered CDs, loan sales, banker's banks, and asset securitization. With these efforts have come new challenges, including increased regulatory scrutiny, shrinking interest rate margins, and asset management concerns.
Through the years, ABA has dedicated substantial resources to addressing concerns over funding and liquidity at banks and savings institutions through our work on Federal Home Loan Bank collateral issues, agricultural task-forces, legislative development of new savings vehicles, and design of ABA products.
ABA RESOURCES
ARTICLES, TALKS AND TESTIMONY
Questions? Please contact Rob Strand for more information.
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