HUB|Taylor Advisors Client Memo:  Bank Term Funding Program

Given the events of this weekend, confidence in the banking sector is under pressure and liquidity is of upmost importance.  We recommend that our clients initiate steps outlined within the CFP for a Stage 2 and take the following actions to shore up contingency liquidity:

  • Identify and pledge any available real estate loan collateral to the FHLB to increase capacity.
  • Establish and set up access to FRB’s Term Funding Program.
    • Immediate collateral – Agency, Treasury, MBS, and Municipal bonds – If needed, physically move safekeeping to FRB. 
    • Secondary Collateral – Non-real estate loans (not FHLB pledge-able).
  • Consider issuing term brokered deposits to free up any current FHLB borrowings.
    • 3/6/9/12-month terms, guaranteed rate, and shortest settle possible.
  • Carry added cash and cash equivalents on balance sheet, even if it requires additional borrowings from BTFP to do so. 
  • Monitor any investments in bank subordinated debt.
    • Liquidity of issuer, and any potential exposure to SVB/Signature Bank
  • Test all borrowing lines.
  • Encouraging reciprocal deposits for large/uninsured customers where appropriate.  If you are not set up with IntraFi to use reciprocal deposits, consider starting this process as a way to fully insure large deposit relationships.  Even if aggregate reciprocal balances are above the 20% of liabilities threshold.
  • Communication:
    • Ensure Front Line Employees are armed with script to communicate health and stability of the bank.
    • Reiterate no venture capital/crypto exposure.
    • Ample liquidity sources that would not require the bank to sell investments to raise liquidity.
    • If established, have reciprocal deposits to secure large depositors.

Additionally, here are some questions that regulators have been circling:

  • Are you experiencing deposit run off?  Do you have concerns about the level of run off?
  • Do you have significant deposit concentrations?  If so, do you have concerns about volatility and/or higher rate sensitivity?
  • Are you tracking your TCE ratio?  If so, do you know what rate increase would cause your TCE ratio to go negative?
  • Do you have any plans to liquidity securities in the near term?
  • Do you have access to secured lines of credit?  If so, do you plan to increase collateral pledged to these lines in the near term?
  • Have you made any recent (or planned) changes to your liquidity monitoring/risk management practices?
  • Do you have any other liquidity concerns that we should be aware of?

If you have any questions, please email the entire consulting team and we will respond promptly.

Sasha Antskaitis

Omar Hinojosa

Tom Evans

Will Craycraft