A new and very inexpensive Liquidity Facility Funding Tool that will replace or supplement other highly expensive or mostly useless alternatives.
The Interbank Deposit Exchange allows your bank to receive from another FDIC-insured institution a three year annually-rolling Irrevocable Letter of Credit to place, upon your request, a $250,000 deposit in your institution with a maturity of one year.
In exchange your institution issues an Irrevocable Letter of Credit to place a $250,000 deposit, with the same terms and maturity, with the institution that issues an Irrevocable Letter of Credit to you.
The Irrevocable Letters of Credit are not tied to each other and may be executed independently, by either party, at any time. A bank would only draw on the Irrevocable Standby Letter of Credit in case of experiencing a liquidity event, a low probability event under GAAP.
The rate of interest applicable to a deposit placed as a result of funding an Irrevocable Letter of Credit will be : At a rate of interest equal to the highest of the below formula on (a) or (b) :
A) The then current upper band of Target Federal Funds , as published by the Federal Reserve Bank , plus a margin of 3/4 of 1% (75 bps) . Such rate to be adjusted up or down effective the following business day in which banks are open for business, each time time the Federal Reserve changes during the time the deposit remains outstanding , or
B) If (a) is not in compliance with then current FDIC regulations , a fixed rate of interest equal to the then current interest rate cap for a one year jumbo deposit as published by the Federal Deposit Insurance Corporation under their weekly update of national rates and rate caps.
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