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FRM Part II · FRM Exam Part II · Managing Nondeposit Liabilities

A US community bank wants stable, term wholesale funding to match fixed-rate mortgage assets and pledges eligible residential mortgage loans as collateral to its regional Federal Home Loan Bank (FHLB). Which statement best describes a key feature of this funding source?

FHLB advances are secured loans to members, backed by pledged collateral such as mortgages, and are offered in many maturities including long fixed-rate terms. That makes them useful for matching longer-dated assets, unlike unsecured, rating-priced or on-demand funding.

  1. AAdvances are secured by pledged collateral and are typically offered in a range of maturities, including long-term fixed-rate termsCorrect
  2. BAdvances are unsecured and priced off the bank's credit rating alone
  3. CAdvances are available only to banks with a Federal Reserve discount window account
  4. DAdvances must be repaid at the FHLB's discretion on 24 hours' notice

Explanation

FHLB advances are collateralized loans to member institutions and come in many maturities, including long-term fixed-rate structures that help match mortgage assets. They are not unsecured, do not require a discount window account, and are not callable at will on short notice.

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