To the Chief Executive Officers of all State Member Banks, Bank Holding Companies, Edge & Agreement Corporations, and Branches & Agencies of Foreign Banks in the Second Federal Reserve District:
Commercial banks have become increasingly reliant on wholesale borrowings obtained from a number of financial intermediaries, including Federal Home Loan Banks, other commercial banks, and securities firms. If properly assessed and managed, these products may enhance a bank's funding options. However, some of these wholesale borrowings have complex structures, and have the potential to increase a bank's sensitivity to market and liquidity risks.
The Federal Reserve Board has specified additional steps that supervisors should take, in addition to the sound practice guidance regarding bank liability management and funding in general, when assessing banking institutions with material amounts of complex wholesale borrowings.. This additional guidance is contained in a supervisory letter (SR 01-8), dated April 5, 2001.