Loan growth and cash demands need not arrive at the same time as deposit growth. A bank can close the gap by changing assets, raising deposits or obtaining non-deposit liabilities. Wholesale funding can be raised in large amounts and at selected maturities, but cost and availability depend on market conditions and the bank's credit standing.
Federal funds purchased are typically short-term unsecured interbank borrowing. Repurchase agreements, or repos, raise cash against securities. Offshore dollar deposits and borrowing supply dollars outside the United States. Negotiable certificates of deposit are deposits legally, but often appear alongside wholesale alternatives in funding decisions because their cost and behavior differ from relationship-based balances. Commercial paper supplies short-term unsecured market funding, often through a holding company. Longer-term notes or bonds reduce immediate rollover needs but usually cost more and take longer to arrange.
Eligible member banks may obtain Federal Home Loan Bank (FHLB) advances against acceptable collateral. Eligible central-bank facilities can also provide secured funds under their own terms.
Common mistakes
- Choosing funding only by rate. A cheap overnight source can be unsuitable for a long-lived asset if refinancing is unreliable.
- Equating pooled cost with one marginal quote. A forecast pool may contain several sources, noninterest expenses and non-earning balances.
- Charging repo interest on collateral value. In Example 2 use $49M cash, not $50M collateral.
Bottom line
- Wholesale funding choices balance cost, tenor, concentration, collateral and stressed access.
- The available funds gap compares dated uses with sources.
- Historical cost describes existing funding; a prospective pool prices expected new resources.
- Non-earning balances raise the funding hurdle on deployable funds.
Exam shortcut
Label every repo amount as collateral value, cash advance, interest or repurchase cash. For funding-cost questions, identify both the expense scope and the denominator. A gross amount raised and an amount available for earning assets produce different rates.
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