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June 25 , 2008

By Thomas E. Driscoll, Vice President

Institutions that are collateral constrained can find relief by unlocking the potential found in asset classes other than the one- to four-family, owner-occupied loans that often dominate their balance sheets.

Because of the ease of delivery, Federal Home Loan Bank of Boston borrowings are often described as “just in time inventory.” The prudent borrower should ensure ready access to this source of liquidity by maintaining a sufficient collateral cushion. If the member’s one- to four-family collateral has been exhausted, additional borrowing capacity can be found through other - often overlooked - asset classes such as:

• Commercial Real Estate
• HELOCs
• Closed-end Seconds
• 5+ Unit Loans

For those with pressing needs, pledging additional forms of collateral will immediately result in a higher borrowing capacity, a larger contingency funding cushion, and a greater liquidity position. It is wise to be preemptive in increasing your liquidity cushion to be prepared to handle unexpected deposit outflows or other funding needs. For members who are seeing their collateral cushion dwindle, we strongly encourage them to contact their relationship manager to schedule a collateral review.

Members can also satisfy regulators’ demands placed on all financial institutions for greater safety and soundness. Three important aspects of managing liquidity that will be under close examination going forward are market liquidity risk, funding liquidity risk, and contingency planning. The Federal Home Loan Bank of Boston is eager to assist members in managing that risk by facilitating and enhancing the availability of credit and ensuring their continued success.