Wholesale Funding
Using A Long-Long Strategy to Enhance the Bottom Line
by Tom Farin
July-August 1993
This is the Madison Bank & Trust (MB&T) Case Study. It does the following:
- Introduces a mortgage lender with eroding ROA and ROE as a result of declining loan demand.
- Uses marginal cost pricing to reduce the cost of funds.
- ses long-term FHLB advances to fund retention of long-term fixed-rate mortgages.
Using Total Rate of Return Analysis to Evaluate Alternative Funding Sources
By Tom Farin
May-June 1994
In this article, Tom Farin extends the concept of TRR to choice between funding alternatives. In the Fort Knox savings & Keep example, he looks at three alternative ways of funding growth.
- Why TRR can also be used in evaluating alternative funding sources.
- Fort Knox Savings & Keep - base institution.
- Using TRR to evaluate alternatives in funding growth.
- Raising rates on existing deposits.
- Borrow from FHLB.
- Purchase a branch.
- Conclusions drawn from the analysis.
By Tom Farin and Tom Parliment
July-August 1994
This case study looks at an overcapitalized institution and suggests a number of retail and wholesale strategies aimed at solving its financial performance problems.
- Loan growth funded with wholesale borrowings
- Short-term fixed-rate mortgages.
- Home equity line bundle.
- Leverage using a wholesale/wholesale strategy.
- Corporate debt.
- LIBOR ARM
Lessons in Leveraging - Managing EPS Through Low-Margin Transactions
By Tom Parliment
July-August 1994
In this article, Tom Parliment discusses the use of a number of investment transactions to leverage an institution, improving ROE. For each, he discusses the risks inherent in the strategy.
- Examples applied to Fort Knox Savings case
- Interest rate risk mismatch.
- Incurring credit risk.
- Floating rate CMO.
- ARM securities.
- PAC bond.
Mississippi Federal Bank Case Study
By Tom Farin
January-March 2001
This case study introduces a leveraged shop with a significant interest rate risk issue. The case also identifies a number of pricing problems. Many of the articles in this issue relate to the case.
- Current situation.
- Regulatory pressure on interest-rate risk.
- Stockholder pressure on earnings.
- ALM dilemmas and strategy objectives.
Market Value – It’s Not Just a Regulatory Compliance Tool!
By Tom Farin
January-March 2001
In this article, Tom Farin discusses the value of both income simulation and market value analysis in evaluating risk/return tradeoffs in alternative strategies for improving an institution's performance. Along the way, he explains, models and evaluates a solution to the short-term problems in the MissFed case.
- Historical perspective of regulatory initiatives on market value
- Alphabet soup of terms - MVPE, NPV, EVE, Value at Risk
- Why market value measurement systems were imposed.
- What income simulation won't tell you.
- MissFed Case solution - an example.
- Market value risk - long term effect of rate shocks on income.
- Moving toward dynamic analysis.
- Income simulation.
- Market value testing.
Managing Market Value Risks: Miscellaneous Strategies
Tom Parliment
January-March 2001
Tom Parliment attacks the solution proposed by Tom Farin in the market value article. he then proposes the use of a structured FHLB advance that increases MissFed's option risk. He then uses a simulation model to evaluate the effect of the strategy on both income and market value risk, proving, at least in this case, his solution is superior.
- Mortgages create asymetrical market value risk.
- Mississippi Fed - the base case.
- Tom Farin's matched funding solution.
- Dr. Tom's add more optionality solution.
- The risk/return tradeoffs - food for thought.