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The FixedRate Advance with a LIBOR Cap (FixedRate with Cap) is a hybrid funding option that combines a fixedrate borrowing with an embedded interestrate cap tied to 3month LIBOR index. The advance rate remains fixed but may be reduced quarterly if 3month LIBOR rises above the cap that is chosen by the member prior to the transaction. If 3month LIBOR rises above the predetermined cap, the interest rate would adjust downward depending on how many basis points LIBOR is above the cap. Interest rate adjustments are performed either on a onetoone basis (1×) or by one basis point for every two basis points (0.5×) 3month LIBOR is over the cap. The net adjusted advance rate cannot be less than zero percent.

Video Introduction:

For liabilitysensitive members, this product could potentially be helpful with mitigating risk associated with regulatory interestrateshock scenarios. A rapid rise in interest rates could cause the interest expense of the advance to plummet (quarterly reset and a floor of zero), which would help offset declining net interest income. Additionally, the falling coupon rate would increase the present value of the advance in a rising environment, serving to assist with an institution’s Economic Value of Equity at Risk.

Example: 5Year FixedRate with Cap, 1× Multiplier 

Initial Advance Rate: 1.39%
3Month LIBOR Cap: 1.75%
In this example, when the 3month LIBOR rose to 1.80% in the third quarter of year four, the rate of the FixedRate with Cap lowered to 1.34% (calculated by subtracting the difference between the actual LIBOR rate and the LIBOR cap from the initial advance rate). If the advance cap was structured on a 0.5× basis, the difference would be divided in half, then subtracted from the initial rate, lowering the advance rate to 1.365% .

 Minimum advance size: $5 million per trade
 Maturity: 1 to 10 years
 Multiplier options: 1× and 0.5×
 Day count basis: Actual/360
 Embedded interestrate cap index: 3month LIBOR
 Rate adjustment frequency: quarterly reset with a 2businessday lookback
 Prepayable: yes
 Provides protection against rising interest rates (lowers your institution’s cost of funds as rates rise)
 Flexible mediumlongterm funding option best used to extend liabilities, potentially enhance spreads, and preserve margins
To discuss how the FixedRate Advance with a LIBOR Cap may provide additional margin relief from sharp increases in interest rates, contact a Calling Officer at (212) 4416700.