Member Strategies for the COVID-19 Recovery Advance
May 12, 2022
On
April 11, 2022, we introduced the 2022 COVID-19 Recovery Advance—a new advance
opportunity that supports members as they recover from the pandemic. We are
currently accepting applications for the advance through noon on Friday, May 27, 2022.
The significantly-below-market rate advance paired with a lower “all-in” cost
due to The Dividend Effect remains among the cheapest sources of 1-year
wholesale funding. Members are utilizing the advance for many strategies
including but not limited to those outlined below:
- Fund Balance Sheet Loan Growth – With mortgage interest rates reaching levels not seen in over 10 years, more and more members are putting their excess liquidity to work and holding loans on balance sheet. As deposit liquidity begins to tighten, utilize the COVID-19 Recovery Advance as additional liquidity for your expanding balance sheet.
- Match Fund a 1-Year Treasury for Risk-Free Income – Match fund and purchase a 1-year treasury to earn a net spread on a risk-free asset. The weekly COVID-19 Recovery Advance interest rate set on May 2, 2022 was 2.01%, effectively reduced to 1.91% after factoring in your dividend benefit. The 1-year treasury rate was 2.16% as of May 3, 2022 resulting in a net spread of 25 basis points (bps) of risk-free income.
- Purchase Assets for Spread Lending Programs – Similar to the above example, short-fund the purchase of assets such as collateralized loan obligations (CLOs) or mortgage loans for spread lending programs, using the significantly-below-market rate advance to further increase your net spread for the first year.
- Fund Short-Term Auto Loans or Construction Loans – Members often use a blended funding strategy to hedge short-term auto and construction loans, using a blend of deposits, short- and medium-term advances, and a longer-term amortizing advance to mitigate interest-rate risk. Using the COVID-19 Recovery Advance as a part of this strategy will help reduce your starting net interest margin (NIM).
- Replace Your Maturing 0% COVID-19 Relief Advance – Many members are still utilizing the liquidity provided by last year’s 0% COVID-19 Relief Advance. Rather than raising deposit rates as liquidity tightens, utilize this year’s advance as a replacement for last year’s maturing 0% advance.
How to Transact
- Confirm you received this week’s COVID-19 Recovery Advance rate email from reliefadvance@fhlbc.com. The email was sent by 9 a.m. on Monday, May 9. Contact your Sales Director if you cannot locate it.
- COVID-19 Recovery Advance terms and conditions and program eligibility are included in the original announcement.
- Apply for the COVID-19 Recovery Advance. As a reminder, application for this advance is a mandatory takedown, and the advance must settle before it can be prepaid.
Questions?
Visit the 2022 COVID-19 Recovery Advance section of our COVID-19 Resource Center to learn more about the 2022 COVID-19 Recovery Advance, how to apply, and view frequently asked questions.
Please reach out to me with any additional questions.