Wholesale funding is a method that banks use in addition to core demand deposits to finance operations and manage risk. Wholesale funding sources include, but are not limited to, Federal funds

Federal funds

In the United States, federal funds are overnight borrowings by banks to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions...

, public funds (such as state and local municipalities), U.S. Federal Home Loan Bank advances, the U.S. Federal Reserve's primary credit program

Discount window

The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions...

, foreign deposits, brokered deposits, and deposits obtained through the Internet or CD listing services.

Rationale

Although core deposits continue to be a key liability funding source, many insured depository institutions have experienced difficulty attracting core deposits and are increasingly looking to wholesale funding sources to satisfy funding and liability management needs.

Liquidity risk

Wholesale funding providers are generally sensitive to changes in the credit risk profile of the institutions to which they provide these funds and to the interest rate environment. For instance, such providers closely track the institution's financial condition and may be likely to curtail such funding if other investment opportunities offer more attractive interest rates. As a result, an institution may experience liquidity problems due to lack of wholesale funding availability when needed.

External links

• FDIC's Risk Management Manual of Examination Policies (Sec 6.1: Liquity and Funds Management)
• theotherschoolofeconomics.org The Greek crisis as an illustration of the importance of wholesale funding for countries where deposits and savings are structurally low