2. CHAPTER TWELVE Managing Nondeposit Liabilities And Other Sources Of Borrowed Funds
The purpose of this chapter is to learn about the principal nondeposit sources of funds that financial institutions can borrow to help finance their activities and to see how managers choose among the the various nondeposit funds sources currently available to them.

3. Customer Relationship Doctrine
The First Priority of the Bank is to Make Loans to All Qualified Customers and If Funds are Not Available the Bank Should Seek Out the Lowest Cost Source of Funding to Meet Customers’ Needs.

4. Liability Management
The Bank Buys Funds in Order to Satisfy Loan Requests and Reserve Requirements
It is an Interest-Sensitive Approach to Raising Bank Funds
It is Flexible – The Bank Can Decide Exactly How Much They Need and For How Long
The Control Mechanism to Regulate Incoming Funds is the Price of Funds

5. Nondeposit Sources of Funds
Federal Funds Market
Federal Reserve Bank
Negotiable CDs
Commercial Paper
Repurchase Agreements
Long Term Sources

6. Federal Funds Market
Deposits Held by U.S. Banks at Federal Reserve Banks, Deposits with Correspondent Banks and Demand Deposit Balances of Security Dealers and Governments Can Be Used For Loans to Institutions

7. Types of Fed Funds Loan Agreements
Overnight Loans
Term Loans
Continuing Contracts

8. Repurchase Agreements
Involves the Temporary Sale of High-Quality Assets (usually Government Securities) Accompanied by an Agreement to Buy Back Those Assets On a Specific Future Date At a Predetermined Price or Yield

9. Borrowing From the Federal Reserve Bank
A Bank With Immediate Reserve Needs Can Borrow From the Federal Reserve. There are Three Types of Loans for Different Needs, Each With Its Own Interest Rate. There are Restrictions on the Frequency of Borrowing at the Federal Reserve.

10. The Three Types of Federal Reserve Loans
Adjustment Credit – This Loan is Only for a Few Days and is to Provide Immediate Aid in Meeting Reserve Requirements
Seasonal Credit – This Loan Has a Longer Maturity Than the Adjustment Credit Loan and is For Banks With Seasonal Swings in Deposits and Loans
Extended Credit – This Loan is for Banks Experiencing Longer-Term Funding Problems

11. Negotiable CD
An Interest-Bearing Receipt Evidencing the Deposit of Funds in the Bank for a Specified Period of Time for a Specified Interest Rate. It is Considered a Hybrid Account Since it is Legally a Deposit

12. The Four Types of Negotiable CDs
Domestic CDs – Issued By Domestic Banks in the U.S.
Euro CDs – Dollar Denominated CDs Issued Outside the U.S.
Yankee CDs – Issued By Foreign Banks in the U.S.
Thrift CDs – Issued By Large Savings and Loans and Other Nonbanks in the U.S.

13. Eurocurrency Deposit Market
Eurodollars are Dollar-Denominated Deposits Placed in Banks Outside the U.S. Eurocurrency Deposits Originally Were Developed in Western Europe to Provide Liquid Funds to Swap Among Institutions or Lend to Customers

14. Commercial Paper
Short-Term Notes With Maturities from 3 or 4 Days to 9 Months Issued By Well-Known Companies. Banks Cannot Issue These Directly But Affiliated Companies Can Issue Them.

15. Long-Term Nondeposit Sources of Funds
Mortgages to Fund the Construction of New Buildings and Capital Notes and Debentures are Examples of Long Term Sources of Funds

16. The Funds Gap
Current and Projected Demand and Investments the Bank Desires to Make
Current and Expected Deposit Inflows

17. Factors to Consider When Choosing Nondeposit Sources of Funds
The Relative Costs of Raising Funds From Each Source
The Risk of Each Funding Source
The Length of Time for Which Funds are Needed
The Size of the Bank
Regulations Limiting the Use of Various Funding Sources