Turning FHLB Des Moines Borrowing Capacity Into On-Balance Sheet Strength

last updated on Thursday, March 19, 2026 in Advances

If your institution is tight on liquidity, opportunities to quickly improve on-balance sheet liquidity can be scarce. Enter the Federal Home Loan Bank of Des Moines. By using FHLB Des Moines Advances, you can convert your off-balance sheet line of liquidity with the Bank into on-balance, short-term liquidity when needed. Additionally, you can take the advance funds and invest in High-Quality Liquid Assets (HQLAs) and earn additional income while improving liquidity.

How it Works

1. Select the Advance Term
   Identify your liquidity needs and select an advance term that matches. In this example we will use a three-month advance.
2. Identify a High-Quality Liquid Asset
   In this example, we will invest our advance proceeds in a three-month U.S. Treasury bill.
3. Capture Relatively Risk-Free Interest Income
   U.S. Treasury bills are generally considered to be some of the highest quality, liquid assets available. 

4. Account for the FHLB Des Moines Dividend Benefit
   The dividend earned on FHLB Des Moines activity stock is a crucial component of the positive earnings calculation. Without factoring in the dividend benefit, the full value of this strategy is not captured.

The Math

Using a 3-month bullet advance from FHLB Des Moines:

• Advance rate: 3.85%
• 3-Month U.S. Treasury yield: 3.69%
• Activity stock requirement: 4.5% of advance principal
• Current dividend rate on activity stock: 9.75% annually¹

While the nominal spread between the advance rate and U.S. Treasury yield appears negative, the dividend significantly offsets the difference. The table below highlights the impact of borrowing $30 million from FHLB Des Moines, setting aside 4.5% for the activity stock purchase, and using the rest of the funds to purchase a 3-month U.S. Treasury bill.

Impact on Liquidity

Impact on Income

Summary

As shown above, leveraging short-term FHLB Des Moines Advances can help improve on-balance sheet liquidity while also net income. Rather than leaving your unused FHLB Des Moines borrowing capacity idle, this approach allows it to generate value with your available collateral. If you’d like to discuss further, please reach out to your relationship manager or the Strategies Team.

¹As of last dividend paid on February 17, 2026. FHLB Des Moines does not project future dividend payments.

TAGS

1. Advance Solutions
2. Balance Sheet
3. Strategies