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Reduce long-term funding costs with swaps

Many financial institutions have experienced excess liquidity over the last few years as a result of the pandemic and associated fiscal stimulus. However, a more recent pick-up in loan demand is causing institutions to think more about future funding needs. In this more “normalized” environment, financial institutions may need to access wholesale funding to continue making long-term fixed-rate loans like residential mortgages and commercial real estate loans. Short-term funding presents interest rate risk in a rising rate environment, and term FHLB funding typically results in higher costs for liquidity. While getting back to “normal” feels good, it presents risks to many financial institutions. Is there a solution?

Swaps provide financial institutions a tool to lower funding costs while managing rate risk

Here's how:

  • Acquire short-term funding from FHLB advances or brokered deposits
  • Identify amount and term of borrowing to hedge based on your risk profile
  • Use a pay-fixed swap to convert the short-term funding to a synthetically longer-term fixed rate
  • The swap can start today or in the future, allowing the financial institution to customize its risk profile
  • Hedged exposure must remain outstanding through the life of the hedge
  • The swap should match the resets of the short-term borrowings to achieve the best results


    • Reduce term borrowing costs compared to traditional FHLB term advance rates, resulting in significant savings
    • Own the upside in a rising rate environment in the event of prepayment of the funding (all or partial) and breakage of the swap
    • Continue to grow and better compete for long-term fixed-rate loans when the need for liquidity is increasing
    • Meet customer needs regardless of the rate cycle
    • Lower capital requirements mean minimal impact on capital ratios
    • Produce smoother net income

      Chatham’s end-to-end interest rate risk management solutions provide the tools needed to meet fixed-rate loan demand, manage interest rate risk, and enhance earnings. Our experts collaborate with clients to identify the best strategy given their unique risk profile, views, and desired outcomes.


      • Led by a client relationship manager who provides hedging advisory guidance and delivers the deep resources of our Financial Institutions team.
      • Supported by a hedge accounting team with each client having a dedicated hedge accountant who helps with all the required initial documentation and ongoing testing.
      • Backed by a regulatory/ISDA team to help negotiate derivatives documentation and keep our clients up to date on regulatory changes.


      • A collaborative approach to hedging decisions from strategy identification to execution to accounting.
      • A proven ERM framework covering controls, processes, and regulatory compliance including SSAE-18 audit.


      • Our online platform, ChathamDirect, is a modern, scalable, secure cloud platform.
      • ChathamDirect provides efficient structuring, origination, and servicing for your entire derivatives program, backed by our market-leading processes, controls, and built-in Dodd-Frank compliance.

      We'd like to hear from you

      Contact us to understand how your financial institution can use interest rate swaps as a tool to lower funding costs while managing rate risk.


      Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit

      Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.