Industry Perspective How Did We Get Here

1
Industry PerspectiveHow Did We Get Here?

• Karl Nelson

2
Our Agenda

• An Industry Perspective
• FDIC Liquidity Guidance
• Rate Board Funding
• TARP
• CDARS and IND
• IDC Deposits
• Federal Reserve Discount Window
• FHLB Advances
• Intrasweep Solutions
• Contingency Funding Plan

3
The Golden Age of Banking

• Key Banking Periods.
• Recognizing Problems 1984 1990.
• Clean-Up Time 1990 1992
• Golden Years 1993 2006
• Problem Period 2007 2009?

4
The Real Estate Breakdown

• Starts With A Desire to See More Families in
  Homes.
• Add in Some Disreputable Brokers.
• Add in Some Homeowners Who Knew Better.
• Add in Some Greed From Wall Street.
• Add in Some Greed From Rating Agencies.
• Toss in Some Misled and Unsophisticated
  Investors.
• We Call This A Mess!!!

5
The Golden Age of Banking

• Of course, This Period Was Also Marked By A
  Significant Decline in Failures
• 1981 1985 109 / Year
• 1986 1990 371 / Year
• 1991 1993 167 / Year
• 1994 2004 6 / Year
• 2005 2006 0
• 2007 3
• 2008 25
• 2009 2

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What Does It All Mean?

• With our Net Interest Margin in a Declining
  Trend, Bankers will Pay More Attention to
  Liquidity and Capital Management.
• If You Have Excess Capital, You May Want to Use
  It To Create Additional Income.
• It Has Never Been More Important To Have A Good
  Contingency Funding Plan.
• And, Having Funding Options Is Key To Success.

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Funding Options

• No Collateral Needed
• Rate Board www.qwickrate.com
• Brokered Deposits
• CDARS www.promnetwork.com
• IDC Deposits www.idcdeposits.com
• Fed Funds

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Funding Options

• Collateral Required
• Repurchase Agreements Best Collateral
• FHLB Seattle Next Best Collateral
• Federal Reserve Discount Window Remaining
  Collateral

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Funding Options

• With Net Interest Margins Under Attack, It is Key
  That All Banks Look at Ways to Decrease Their
  Cost of Funds.
• Loan Notes Floors?
• Investments MBS?
• Liabilities Think Balance Sheet!
• Pricing Concepts.

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Funds Management Report

• Regulators are Naturally Concerned About
  Wholesale Funding.
• Unfortunately, The Delineated Community Model
  isnt Working.
• Is There Really A Core Deposit in the CD Arena?
• Using Wholesale Funding Carries a Responsibility
  To Understanding and Reporting To The Board.

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Next Step

• What Does The FDIC Have To Say About Liquidity?