Western Independent Banker - January/February 2009 - (Page 13)

By Richard M. Riccobono Staying Liquid in a Time of Regulatory Sea Change • Will recent regulatory actions directly or indirectly impact the banking industry’s ability to raise funds at competitive levels in the wholesale markets? • Will the new insurance on money market funds impinge upon bank liquidity? • What are the prospects for longer-term government support of the overall GSE model, and what might this mean for access to wholesale funding? • Are there new business opportunities for the banking industry as a result of these regulatory developments? With the Temporary Liquidity Guarantee Program, the FDIC now guarantees a bank’s non-interest demand deposit accounts and senior unsecured debt. This program has certainly enhanced the perception that financial institutions will be able to retain deposits and raise new funds. Similarly, the FDIC’s guarantee of bank holding company loans enhances the liquidity of small banks. The TARP Capital Purchase Program enables banks to raise incremental capital at a reasonable cost. This should strengthen bank balance sheets because, in all likelihood, a portion of these proceeds will be used to acquire liquid assets that can be pledged as collateral for sources of wholesale funding. In the “don’t worry, it’s only a temporary condition” category, many are focused on the impact of the $50 billion in available U.S. Treasury guarantees of publicly offered U.S. money market funds, as authorized under the 1934 Exchange Stabilization Act of 1934. As of the date of this writing, the Treasury has the ability to THESE DAYS, A perceived lack of liquidity might be best exemplified by the customer who steps up to the ATM to make a withdrawal. As the display reads “insufficient funds,” the customer may not be sure if the words apply to him or to the bank! In a world where perception is everything, it is critical that your investors, depositors and regulators believe in your ability to quickly generate cash in any number of situations—not the least of which could be an unexpected deposit runoff or the inability to attract new deposits. In fact, a perceived lack of liquidity has been known to torpedo even a perfectly solvent institution. The legislative and regulatory actions of the past few months have steered many banks away from the dangerous shoals of illiquidity—both actual and perceived. Nonetheless, the full ripple effects of the Housing and Economic Recovery Act of 2008, the FDIC’s Temporary Liquidity Guarantee Program, the Emergency Economic Stabilization Act of 2008, including the TARP Capital Purchase Program, and others, have yet to be fully realized. Among the questions that they have raised: The TARP Capital Purchase Program enables banks to raise incremental capital at a reasonable cost. This should strengthen bank balance sheets because, in all likelihood, a portion of these proceeds will be used to acquire liquid assets that can be pledged as collateral for sources of wholesale funding. Western Independent Banker January/February 2009 13

Table of Contents Feed for the Digital Edition of Western Independent Banker - January/February 2009

Western Independent Banker - January/February 2009 Contents A Message from the President & CEO Managin Liquidity and Funding During a Recession Staying Liquid in a Time of Regulatory Sea Change Managing Liquidity in a Volatile Rate Environment Regulatory Outlook for Brokered Deposits Deposit Growth and Branch Network Effectiveness Turbo Charging Account Acquisitions FDIC-Insured Sweep Accounts Creating a Contingency Funding Plan WIB Service Corporation Report WIB Calendar New Members Index of Advertisers advertiser.com

Western Independent Banker - January/February 2009

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.