A Strategic Review of Liquidity Coverage and Income [CASE STUDY]

posted on Monday, March 12, 2018 in Letters of Credit

In the wake of declining margins and a regulatory discussion, a financial institution's management team would like to review means of improving liquidity and income. An increasing portion of public unit deposits is being pledged via securities. The options: A) Continue to deploy capital toward lower-yielding securities and pressure pledged securities and liquidity ratios. B) Examine the positive implications associated with using low-cost letters of credit. Assess the impact of substituting pledged securities with letters of credit on liquidity ratios and alternatively deploying capital to making loans versus holding securities.  

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