Pub. 8 2020 Issue 4


Planning for Low Rate, High Liquidity Scenarios

Deposit growth continues to outpace loan demand, leaving financial institutions across the country flush with liquidity. Many factors have resulted in these unprecedented conditions, from near-zero interest rates to an influx of deposits from Paycheck Protection Program (PPP) loans and CARES Act stimulus checks. This exacerbates the growth of deposit balances that were on the rise prior to the pandemic.

This deposit growth has resulted in the personal savings rate in April, reaching 33%,(1) which is the highest level ever recorded. These external factors have converged to create a wave of “surge” deposits. This leaves two very important questions facing most financial institutions:

  1. How sticky are these “surge” deposits?
  2. How do financial institutions deploy excess liquidity to maintain net interest margin levels?

Though most institutions have little need for additional funding until PPP loans begin to run off and overall loan demand picks up, it does not eliminate the need to have a long-term strategic liquidity plan. A prudent funds management process is of paramount importance regardless of economic or interest rate environment.

Gauging your institution’s collateral availability is a vital piece of this process. To maximize your collateral position with FHLB Des Moines, we recommend using our collateral eligibility checklists. These checklists can be used to evaluate existing loan portfolios to determine collateral eligibility. We also recommend utilizing the checklists as part of your new loan origination process.

In addition, the unprecedented level of “surge” liquidity injected into the financial system by the Federal Government has resulted in downward pressure on net interest margins for many financial institutions. One important assessment to conduct during these uncertain times is your institution’s overall cost of funds.

While it is important to maintain a diverse portfolio of funding sources, are there opportunities to lower your funding costs? In this low-rate environment, how long would it take you to recoup the cost of replacing existing high-cost funds with FHLB Des Moines advances?

If your institution already has a low cost of funds, consider restructuring outstanding fixed-rate bullet or convertible advances into longer-term bullet advances to take advantage of these historically low-interest rates. Embedding the prepayment fee into a new advance can result in members lowering their cost of funds while maintaining the existing maturity structure.*

Additionally, don’t forget to factor in the impact of your FHLB Des Moines dividend when weighing your funding options. While this is often overlooked, our Dividend Calculator tool can assist in evaluating funding opportunities.

Our Member Solutions and Strategy teams can offer an analysis of your funding options using our Marginal Cost of Funds tool, as well as provide a glimpse of how your funding costs stack up against peers using our Peer Trend Analysis tool (

For 88 years, FHLB Des Moines has been here through all economic cycles. We look forward to continuing our role as a strategic partner to support your ongoing funding needs.



For questions or assistance, please contact your Relationship Manager, Zachary Bassett at or 206.390.0229.

*FHLB Des Moines does not offer nor provide any accounting guidance about advance restructuring, the appropriate accounting treatment or possible accounting implications. Members should consult with their own internal and/or external accountants and/or auditors prior to entering into an advance restructuring transaction.

This story appears in Issue 4 2020 of the Utah Banker Magazine.