Liquidity Stress Testing Scenarios

last updated on Wednesday, December 1, 2021 in Advances

1. TESTING SCENARIO: Money needed today before end of day settlement

Cut-off time to borrow and wire funds is 4:30 pm central time. Interest for an overnight advance is charged to the member’s DDA each day. If action is not taken to payoff an overnight advance then it will remain outstanding with the interest rate subject to daily change. 

TESTING CHECKLIST:

• Overnight borrowing completed by an individual primarily responsible for initiating advances with advance proceeds (net of activity stock requirement) sent to FED or Institution used for settlement.
• Small amount can be initiated by calling the Money Desk 
• Test borrowing up to $15 million using our online banking system, eAdvantage
• Process includes next day wire/transfer funds back to your FHLB Des Moines DDA to payoff overnight advance. 
• Test availability of significant amount of borrowing capacity with a large overnight advance

• Verify wire authorizations and process. Test borrowing with advance proceeds put into your FHLB Des Moines DDA so proceeds could be wired to a third party. For example, this could be a test to support a scenario where investments have been purchased and funds are needed at broker for purchase.
• Test to borrow as close to cut-off time as possible to document ability to borrow funds with minimal time available.

2. TESTING SCENARIO: Money needed today before end of day settlement and primary person responsible for initiating advance is not available.

TESTING CHECKLIST:
Complete an overnight advance transaction by someone authorized to initiate advances but not the primary person responsible. Various scenarios in #1 above could be tested.

3. TESTING SCENARIO: Personnel changes

When a new user is added with authority to initiate advances it may be a good time to have a test performed so the individual has the experience to initiate an advance request. Changes to executives involved with finance decisions is an opportunity to perform and document a liquidity test.

TESTING CHECKLIST:
New user completes an overnight advance transaction.

4. TESTING SCENARIO: Term advance

A term advance is any advance that has a maturity date from two days to 30 years and can be structured to have a specific maturity date. Billing, maturity and payoff of a term advance works differently than an overnight advance.  

• Advances with a maturity greater than overnight and up to six months have interest and principal charged to the DDA on the maturity date.  
• Advances with a maturity date greater than six months has interest billed on last day of each month and principal and any unpaid interest charged to the DDA on the maturity date. 

TESTING CHECKLIST:

• Adequate funds will need to be in the DDA to cover the charge for the billing of principal and maturity to avoid an overdraft. 
• The cut-off time for term advances is 3:30 pm central time.

ADDITIONAL TESTING FOR TERM ADVANCES:

• Initiate a future dated term advance. Money needed on a specific day for a specified period of time.  
• Schedule repayment of term advance up to five days prior to the day advance proceeds are needed. Billing, maturity and pay-off of a term advance works the same as noted above. 

5. MISCELLANEOUS SCENARIOS

There are a variety of stress testing scenarios that may be unique to each institution but some examples of business scenarios may include the following.

• Loan fundings or purchases
• Investment purchases
• Deposit run off (including maturity of time deposits)
• Daylight overdraft with the FED
• Payroll settlement with third party requires funding
• Funding of asset purchase such as building or property
• Loan sales did not close as expected funds needed short term
• Funding tax payments (payroll and income tax if applicable) 

¹Cost to borrow is assuming an overnight advance rate of 31 bps (as of 11/30/21), settling the next day.
²The cost after the dividend benefit considers a dividend adjusted rate of 24 bps and is an approximation based off of our current stock requirement and current dividend payment. This is an approximation only. For alternative dividend adjusted calculations, please consider using our dividend calculator. These calculations are indications only.